Professional Documents
Culture Documents
Lecture Notes - Cityu
Lecture Notes - Cityu
LOGO
SECURITIES MARKET
BANKING ACADEMY
FINANCE FACULTY
2022
TIME COMMITMENT
ASSESSMENT
1
9/11/22
Group assignment
HANDOUT
CONTENTS
CONTENTS
Chapter 1 Overview
Chapter 2 Instruments
Chapter 3 Primary market
Guest speaker
Chapter 4 Secondary market
Chapter 5 Regulation and information disclosure
Assignment - Presentation
Review
6
2
9/11/22
LOGO
CHAPTER 1:
OVERVIEW
7
Terminology
English Tiếng Việt
Securities market Thị trường chứng khoán
Financial market Thị trường tài chính
Monetary market Thị trường tiền tệ
Securities Chứng khoán
Real asset Tài sản thực
Financial asset Tài sản tài chính
Direct finance Tài chính trực tiếp
Indirect finance Tài chính gián tiếp
Primary market Thị trường sơ cấp
Secondary market Thị trường thứ cấp
Stock exchange Sở giao dịch chứng khoán
Over The Counter (OTC) market Thị trường phi tập trung
8
Terminology
English Tiếng Việt
Stock Cổ phiếu
Bond Trái phiếu
Derivative Chứng khoán phái sinh
Underwriter Tổ chức bảo lãnh phát hành
Broker Người môi giới
Market maker Nhà tạo lập thị trường
Clearing house Trung tâm thanh toán bù trừ
Securities depository Trung tâm lưu ký chứng khoán
Financial institutions Tổ chức tài chính
Speculator Nhà đầu cơ
Joint stock company Công ty cổ phần
3
9/11/22
Terminology
English Tiếng Việt
Limited liability company Công ty trách nhiệm hữu hạn
State-owned enterprise Doanh nghiệp nhà nước
Mutual fund Quỹ tương hỗ
Pension fund Quỹ hưu trí
Hedge fund Quỹ phòng hộ
Venture capital fund Quỹ đầu tư mạo hiểm
Securities company Công ty chứng khoán
10
Overview
1
Structures 2
3 Players
Performance 4
11
History
4
9/11/22
Crisis
The Tulipmania
Ü The price of tulip flower bulbs increased 10 times
in 3 months
$ 100000
2 billion VND
14
15
5
9/11/22
Black Tuesday
29/10/1929
Down Jones declined by 25%
7/1932
Down Jones
declined by 89%
6
16
LOGO
Black Monday
7
17
LOGO
Discuss
18
6
9/11/22
SECURITIES MARKET?
19
Definition
Financial
Market
Capital Monetary
Market Market
The financial market is the place where financial instruments are traded.
The securities market is a part of the Financial market
20
21
7
9/11/22
Characteristics
The
Direct financing stock
market
22
Indirect finance
Financial
Capital intermediary
Capital
Direct finance
23
Stabilizing macroeconomics
24
8
9/11/22
Operation Principles
Information
Disclosure
Intermediary
Auctioning
Market structure
• Primary market
Method of
• Secondary market
trading
• Stock exchange
Registration • OTC
26
Market participants
Ü Main players:
Ø Investors/Traders (institutional vs individual)
Ø Issuers
Ø Underwriters
Ø Brokers
Ø Dealers
Ø Market Makers
27
9
9/11/22
Market participants
28
MARKET PLAYERS
Financial
institutions
Government Business
sector sector
29
30
10
9/11/22
31
32
Business sector
33
11
9/11/22
34
Governments
Ü Central government:
n Treasury notes (T-notes)
35
Ü Insurance companies
36
12
9/11/22
Securities companies
37
38
LOGO
CHAPTER 2:INSTRUMENTS
13
9/11/22
Terminology
English Tiếng Việt
Government bond Trái phiếu Chính phủ
Municipal bond Trái phiếu Chính quyền địa phương
Corporate bond Trái phiếu doanh nghiệp
Coupon securities Chứng khoán trả lãi định kỳ
Discount securities Chứng khoán bán với giá chiết khấu
Treasury Inflation Protected Securities Trái phiếu Chính phủ ngừa lạm phát
(TIPS)
Debenture bond Trái phiếu không có đảm bảo
Guaranteed bond Trái phiếu có đảm bảo
Sinking fund Quỹ chìm
Refunding Hoàn trả
Convertible bond Trái phiếu chuyển đổi
Floating rate bond Trái phiếu có lãi suất thả nổi
40 BA-2018
Terminology
English Tiếng Việt
Inflation – indexed bond Trái phiếu gắn với chỉ số lạm phát
Zero coupon bond Trái phiếu không trả lãi định kỳ
Foreign bond Trái phiếu nước ngoài
Eurobond Trái phiếu Châu Âu
Bond credit rating Hệ số xếp hạng tín nhiệm trái phiếu
41
Terminology
English Tiếng Việt
Cumulative preferred stock Cổ phiếu ưu đãi tích luỹ
Non-cumulative preferred stock Cổ phiếu ưu đãi không tích luỹ
Redeemable preferred stock Cổ phiếu ưu đãi có thể thu hồi
Non-redeemable preferred stock Cổ phiếu ưu đãi không có điều khoản thu
hồi
Participating preferred stock Cổ phiếu ưu đãi tham dự
42
14
9/11/22
CONTENTS
Overview of instruments
Bonds
Stocks
Derivatives
INSTRUMENTS
Securities
15
9/11/22
Equity Securities
- Classification
+ Company shares
+ Fund Certificates
Debt Securities
3/1/2010
Ü Classification
• Bonds
• Notes
• Commercial papers
Derivatives
3/1/2010
16
9/11/22
Return
Securities
Risk Liquidity
Risk
Risk
The
uncertainty 2.
1.Systematic Unsystematic
of achieving risk
the expected risk
return
Liquidity
17
9/11/22
Company shares
Ü Issuers:
n Joint Stock Company
Ü Characteristics of stock
n Return, risk & liquidity
n Entitle the holder to ownership of the company
n No maturity
n No limit on the amount of dividends that can be paid
n Dividend amount per share is determined by the
company’s board of directors and must be approved by the
shareholders
n Residual claim & limited liability
According to
the interests of
shareholders
Common Preferred
stocks
stocks
also known as
equity securities has features
or equities, or similar to both
ordinary shares, equity and debt
represent
ownership shares
in a corporation
53
Common stocks
Rights Obligations
Preferred stocks
18
9/11/22
- Assets Voting
Receive
dividend rights
Claim on Receive
assets information
- Financial
statements
- Unusual news
Forms of value
Face value
Market Value
Book value
Intrinsic value
Forms of value
1. Face Value (Par value)
n Nominal value of shares
n Associated with firm’s authorized capital
n Dividend base
n Par value obligation in Vietnam?
19
9/11/22
Forms of value
3. Book value
n The value at which an asset is carried on a balance sheet
Forms of value
4. Intrinsic value
n The actual value of a company or an asset based on an
underlying perception of its true value including all aspects
of the business, in terms of both tangible and intangible
factors
TERMS
www.themegallery.co
m
20
9/11/22
Preferred stocks
Return Rights
Fixed dividend
• Entitled to receive a - Rank ahead of
specified fixed return ordinary shares with
out of the firm’s net
earnings respect to dividend
payments and claims
• Depend on:
on assets in the event
- Firm’s earnings of liquidation
- Form of preference: - Normally have no
cumulative,
participating voting rights
What are differences between common
stocks and preferred stocks?
Preference shares
Advantages Disadvantages
Ü No default risk with Ü Preference
non-payment of dividends are not
dividends tax deductible – no
tax relief for firms
Ü Dividends limited in categories 2 and
Ü No ownership 3
dilution Ü While failing to pay
Ü Possible tax relief dividends cannot
with franked force a company
into liquidation, it
dividends conveys a negative
Ü Leverage effect on signal to the market
EPS
Ü Cumulative or non-cumulative
n Usually cumulative
Ü Redeemable or non-redeemable
n Usually non-redeemable
Ü Participating or non-participating
n Usually non-participating
21
9/11/22
Bond securities
Characteristics
1. Par Value
n Nominal value of bonds, printed on the bonds’ faces
2. Maturity
n The period of time from when the bond is issued to when the
loan is due
n Determined when the bond is issued
Characteristics (cont.)
3/1/2010
3. Coupon rate (nominal rate)
n The amount of interest committed by the bond issuers to pay for the bond
holders, calculated as a percentage of the par value.
n Determined at the time of issuance along with the bond’s maturity, can be
22
9/11/22
Return - Risk
Interest
Bonds rate risk
Inflation
Interest risk
Return
Risk
Liquidity
Credit rating risks
risks
Credit rating
23
9/11/22
Ü Rating system:
n High rate = low credit risk
n Collateral
70
n Covenants
Bond Classification
IN TERM OF ISSUER
1 2 3
Government bonds Municipal bonds Corporate bonds
Some government Are issued by state and Are means by which
agencies issue their local government private firm borrow
own securities to - Industrial development money directly from
finance their activities. bond public
- Treasury notes - Tax anticipation notes
- Treasury bonds …
72
24
9/11/22
73
Corporate bonds
Ü Bond indenture
Ü Maturity of bonds
Ü Security for bonds
n Debenture bonds
n Guaranteed bonds
75
25
9/11/22
76
77
Derivatives
26
9/11/22
Type of derivatives
79
Forward contract
Price
determined
Agreement
Certain
period
Features
27
9/11/22
Future contract
Futures contract
Manufacturer
Clearing pay you $ 1,053,003 for the
ten-year T-bonds
who needs to house
borrow $1M in 9
months time
In 9 months time, I agree to
deliver ten year T-bonds with
$1,000,000 face value
28
9/11/22
Deposits
Marking – to - market
29
9/11/22
Margin calls
Closing - out
Forward Futures
Traded Over- the- counter On organized exchanges
(OTC)
30
9/11/22
Options
Types of options
1.Call 2. Put
Options option option
Call option
Seller
Buyers
31
9/11/22
Put options
Buyers Sellers
Option contract
Contents
32
9/11/22
Types of Options
33
9/11/22
LOGO
Terminology
English Tiếng Việt
All or None (AON) Bảo lãnh phát hành tất cả hoặc không
101
Terminology
English Tiếng Việt
34
9/11/22
Terminology
English Tiếng Việt
103
Terminology
English Tiếng Việt
104
CONTENTS
Types of Issuing
Methods of Issuing
35
9/11/22
Primary market
Primary
market
Types of Issuing
Based on:
Timing of q IPO (Initial Public Offering) (1)
Issuing q Secondary Offerings / Seasoned Issues (2)
Types of Issuing
Example:
IPO deal of Polo Ralph Lauren, a leading manufacturer and distributor
of men’s clothing.
The purpose of the offering was to get additional capital to expand its
operations and to create a public market for future seasonal offerings.
36
9/11/22
Types of Issuing
Example:
General Electric, which is a large, well-regarded firm that has had public
stock trading on the NYSE for longer than 50 years.
If General Electric needed additional capital, it could sell additional shares of
its common stock to the public at a price very close to the current market
price of the firm’s stock.
Note: Seasoned issue is the term often applied to equity issues rather than
bond issues
Types of Issuing
n Secondary offerings from equity capital sources: (a) Issuing for Stock
dividend; (b) Capitalization Issuing (Bonus Issuing)
Types of Issuing
1 2 3
• Execute • Sell the • Not
the right right execute
the right
37
9/11/22
The Value of Share Purchase Right & Post-Issuing Market Price of Shares
Record-Date (Ngày chốt DSCĐ): the date by which investors must be on the company's
books in order to receive rights related to stocks
Ex-Date (Ngày GDKHQ): usually set to be two business days before the record date (T
+3), on this date the stock buyers will not be recorded in company’s book, but stock
sellers.
The Value of Share Purchase Right & Post-Issuing Market Price of Shares
Example:
Types of Issuing
n Secondary offerings from equity capital sources: (a) Issuing for Stock dividend; (b)
Capitalization Issuing (Bonus Issuing)
Equity Capital Sources: Capital Surplus, Retained Earnings and other reserves
(a) Stock dividend: rather than receiving dividend payment in cash, investors will
received divident payment (from issuers/firms) in shares
(b) Bonus Issuing: Issue bonus shares to existing shareholders for free (Bonus
issuing) to restructure the company’s reserves
38
9/11/22
N * P0 + n * P
P1 =
N +n
N * P0
=
N +n
Example:
Binh Thuan Hamico Mineral (KSA) announces their stock dividend for current
shareholders.
- Ex-dividend date: 16/8/2011, Record Date: 18/8/2011
- Dividend ratio: 100:20
- KSA shares on 15/8/2011 close at 13,600 VND
Types of Issuing
39
9/11/22
Types of Issuing
Preparing
documents and
Amending the
issuing profile documents
Circular 162/2015/ according to SSC’s
TT-BTC by Ministry of
guide
Finance
1
2
The Procedure
5
Permission
3
4
Quiet period(30 days SSC receive the
of documents full registration
processing by SSC)
Signing
Underwriting
Agreement ! Closing
issue!
General
Meeting ! Application for
!
issuing
Information
disclosure !
Preparation Submitting
Team ! Selecting Application to SSC! Market
!
Underwriters ! stabilizing
Distributing
Signing MOU
! Security !
with underwriter
Pricing ! Reporting
to SSC and
dissove
Application for
syndication !
underwriting !
40
9/11/22
Types of Issuing
Its issuance plan and plan on the use of capital generated from the
Others sale offering are adopted by the Shareholders' General Assembly.
….
Its issuance plan and plan on the use of capital generated from the
Others sale offering are adopted by the Shareholders' General Assembly.
….
41
9/11/22
Types of Issuing
Vietnam’s regulation:
Private placement of securities means an arrangement for offering securities to less
than one hundred (100) investors not including institutional investors, without using
the mass media or the internet
Example 1
Date 24th March, 2015, Song Hong joint stock company apply to State
securities Commission of Vietnam with the follow information:
- Foundation: 2006
- Chartered capital: 7000 million dong
42
9/11/22
Example 2
Date 24th March, 2015, AVC joint stock company apply to State
securities Commission of Vietnam with the follow information:
- Foundation: 2006
Issuing Approaches
Auction Self-issuing
Underwriting
Issuing Approaches
43
9/11/22
Issuing Approaches
The company (issuer) sells its securities directly to the market without the
involvement of any intermediaries.
The issuers need to prepare and conduct the entire issuing procedure on their own,
including following main tasks:
§ Preparation of documents
§ Selling the securities to investors
§ Collecting the proceeds and stabilize the market price.
Issuing Approaches
Issuing Approaches
(2) Underwriting
44
9/11/22
Lead Underwriter
Underwriting Group/
Syndicate
Selling Groups
Sometimes the investment bank will enlist the help of other investment banks to sell the
securities, forming a underwriting syndicate.
Issuing Approaches
(2) Underwriting
New issues (seasoned or IPOs) are typically underwritten by investment bankers
Issuing Approaches
45
9/11/22
Issuing Approaches
Underwriter take the spread between what the underwriters buy the stock from
the issuing company for and the POP
Issuing Approaches
Issuing Approaches
46
9/11/22
Issuing Approaches
Issuing Approaches
(2) Underwriting:
Vietnam’s Regulation on Issue Underwriting
Underwriting means an underwriter undertakes to an issuing organization to complete
procedures prior to the offer for sale of securities, receives some or all of the securities
of the issuing organization for re-sale, or purchases the amount of the remaining
undistributed securities of the issuing organization or assists the issuing organization to
distribute securities to the public.
Securities Law (2019)
Issuing Approaches
47
9/11/22
Issuing Approaches
• (3.1) Common Strike Price Method (Aus.) / Dutch Auction/ Single-Price Auction
• (3.2) Pure Tender Method (Aus.) / Multiple – Price Auction
• (3.2) Competitive Auction
• (3.3) Non- Competitve Auction
Issuing Approaches
3.1. Common Strike Price Method (Aus.) / Dutch Auction/ Single-Price Auction
- Investors submit competitive bids for specific amounts of shares at various
prices
- A common strike price is determined for all investors
3.2. Pure Tender Method (Aus.) / Multiple – Price Auction
- Investors submit bids as per the common strike price method
- For auction winners, shares/bonds are allocated to winning bidders at the price
they bid, starting from the highest bid downwards
Vietnam’s regulation
Procedure of Auction
1
• Announcement of Auction method
2
• Auction registration
3
• Deposit for the auction
5
• Announcement of the results
144
48
9/11/22
Vietnam’s regulation
Bond auction: singple-price or multiple – price mechanism could be
applied, depending on issuers’ decision
145
§ Bidding prices (stocks) or Bidding interest rates (bonds) with quantity ordered
146
147
49
9/11/22
Government raised 300 billion dong through Dutch auction. The following table
presents the bid orders from investors:
Bidding Interest rate Bidding value Cum.bond
Investor
(%) ( billion VNĐ) ( billion VNĐ)
A 6.55 90
B 6.57 120
C 6.59 30
D 7.00 50
E 7.01 120
F 7.02 80
148
149
150
50
9/11/22
151
Issuing Approaches
Issuing Approaches
Example:
51
9/11/22
Government bonds are issued under single-price mechanism with the total issue size of
VND 400 billion, of which VND 50 billion allocated for non-competitive auction.
Information of bids as following:
Bidding interest Bidding value Cumulative
Bidders
rate (%) (billions) value
A 7.05 90
B 7.07 110
C 7.09 120
D 7.11 190
E Non-competitive 60
F Non-competitive 40
Determine auction result for each investor (winning interest rate, winning value)
154
Some notes
Some notes
52
9/11/22
Some notes
LOGO
Terminology
English Tiếng Việt
At the Opening (ATO) Lệnh thực hiện tại giá mở cửa
At the Closing (ATC) Lệnh thực hiện tại giá đóng cửa
Back-door Listing Niêm yết cửa sau (mua lại công ty đang
niêm yết)
Brokerage Môi giới chứng khoán
Call Auction Khớp lệnh định kỳ
Ceiling Price Giá trần
Central Limit Order Book Phương thức giao dịch bằng khớp lệnh
Clearing Bank Ngân hàng chỉ định thanh toán
Continuous Auction Khớp lệnh liên tục
Cross-Listing Niêm yết chéo (niêm yết ở Sở GDCK
nước khác)
Daily Trading Limit Biên độ dao động giá/Giới hạn giao dịch
trong ngày
Dealer Người trungBA-2018
159
gian giao dịch chứng khoán
53
9/11/22
Terminology
160 BA-2018
Terminology
161 BA-2018
Terminology
162 BA-2018
54
9/11/22
Secondary Market
Main content
Over-the-
Exchanges
counter market
Exchange
Listing
Trading
55
9/11/22
Listing
Provide platform
for trading listed
Exchange Allowing members to provide
trading service to clients
firm’s securities
Listed Client
Members
companies
Service provider
Exchanges
56
9/11/22
Roles of Exchanges
Limited Liabilities
Corporation
State-owned
57
9/11/22
172
Members of Exchange
• Types of members
1
Types of members
58
9/11/22
Brokers
Dealers
Specialists
59
9/11/22
Member criteria
1 2 3 4
Compliance
Financial Performance with the
Infrastructure and regulations
condition
experience of Stock
Exchange
Member criteria
- Able to maintain a
required infrastructure for
- Behave ethically, in good
trading of securities.
physical condition for the
- A staff of experienced
Insitutions
job.
and certificated
- Well-educated in
Individuals
employees
Economics, Banking,
- Appropriate deposits at a
Finance, Stock market.
highly-reputated financial
- Financially stable
institution
- Own appropriate
- Fully compliance of laws
degrees/certifications
and Exchange regulations
Criteria Requirements
Certification Is the securities company with the brokerage certification from State
Securities Commission (SSC)
Depository member Is accepted by the Vietnam Securities Depository (VSD) as the
depository member
Infrastructure • Appropriate IT infrastructure meeting the requirements of HOSE
• An appropriate software for trading and settlement.
• Joining the data transmission system as required by HOSE
• Monitors and other devices available for investors to view trading
information on HOSE
• Means of information disclosure available
• Back up system available in case of emergency
Ability and Experience • Ability of CEO as required by laws and regulations
of the Head of entity • IT officer has to have at least a BA degree in Information Technology
and 1 year of experience.
• All staff have to comply with the business ethic code.
Others According to Hochiminh Stock Exchange
60
9/11/22
1 2 3
Rights of member
Receiving information
Responsibilities of member
61
9/11/22
Listable securities
Securities Exchanges
Listable
Definition
62
9/11/22
Type of listing
Initial Change
listing listing
Back
Cross-
Door
listing
Listing
Listing standards
- The level of
- Capital
national interest - Audit’s
- Time of
- The position opinions
operation
of the Company - Disclosure
- Profitability
- Prospect - Securities
- Debt ratio
Company
63
9/11/22
Listing procedures
3/1/2010
Review
Listed
190
Cons Pros
Fund raising
Exchanges
Listing
Trading
64
9/11/22
Trading
Trading
Order
process
Trading Special
Mechanism transactions
- Open account
- Order
Investor
HOSE
Brokers
Investor
VSD Clearing
Bank
Investor
Brokers
Investor
HNX
65
9/11/22
Types of order
Orders
Common Other
Types Issues
What is an order?
198
66
9/11/22
Trading position
Purchase Sell
Ü Cancel order
Ü Amend order:
Common
orders
67
9/11/22
Ü Disadvantages:
n the price at which a market order will be executed
is not guaranteed.
ATO order
68
9/11/22
ATC order
Stop orders
69
9/11/22
70
9/11/22
Other issues
Ü Order slips
Ü Online trading
Ü Phone with record in Brokerage firms.
Ü Contact with brokers (mobile phone, facebook,
LINE, Zalo call, etc.) then sign the order report
later
Orders
71
9/11/22
Order Slip
Online Trading
Online Trading
72
9/11/22
Order Standards
Good-Til-Cancel(GTC)
Immediately-Or-Cancel(IOC) or Fill-
Or-Kill (FOK)
All-Or-None(AON)
Day Order(DO)
Order Availability
Preference
Price
Time
Amount
73
9/11/22
Price unit
Orders matching
Order
matching
Call Continuous
Auction Auction
Call Auction
74
9/11/22
n If there is more than one such price, the value that is
closest to the last execution price will be chosen.
n If there is still more than one such price, the higher one
will be chosen.
Ü If the closing price of a security cannot be calculated
utilizing the above criteria, the last executed price of
that day will be chosen to be the closing price of that
particular stock.
75
9/11/22
Example
Example
76
9/11/22
Example
229
Continuous Auction
Example
77
9/11/22
Result
Buying Selling
Time Price
quantitative quantitative
10h01 No transaction
10h02 A-700 50.5 B-700
10h03 No transaction
10h04 D-500 51 C-500
D-1500 52 E-1500
10h05
A- 300 50.5 E-300
232
EXAMPLE
TIME INVESTOR BUYING ORDER SELLING ORDER
Exercise 1
100 29 1,000
1,200 28.9 1,200
1,100 28.8 1,500
800 28.7 900
750 28.6 1,000
550 28.5 450
110 28.4 100
100 28.3 200
78
9/11/22
Exercise 2
Exercise 3
237
79
9/11/22
Trading limit
Malayxia +30%
Shanghai +10%
Trading limit
80
9/11/22
Price-weighted average
Ü
81
9/11/22
Market-value-weighted average
Market-value-weighted average
Ü
Market-value-weighted average
Ü
82
9/11/22
Market-value-weighted average
Ü
Stock Outstanding Price at time Price at time Market cap Market cap
shares 0 ($) 1 ($) time 0 time 1
A 50 3 4 150 200
B 50 1 1 50 50
C 70 7 7 490 490
D 20 9 9 180 180
E 10 10 9 100 90
Total 970 1010
Market-value-weighted average
Ü
Equally-Weighted Index
Ü
83
9/11/22
Special transactions
Margin Short
trading Sales
Margin trading
Short sales
84
9/11/22
Special transactions
Special transactions
Ø Margin call: When the value of the investment on drop below
maintenance margin, the traders get a margin call from the
securities firms.
- Upon receiving a margin call, an investor have to deposit more
value into the account to raise the value of the investment to at
least maintenance margin level or sell all or parts of his/her
investment.
- If he/she failed to satisfy a margin call, their investment will be
liquidated immediately.
Margin call
85
9/11/22
Margin trading
Ü Example
On 17th, June, 20XX Mr. Investor buys 100 IBM
shares at $10 per share (total of $1,000)
• Initial margin: 60%, Investor has to deposit 60%×
1,000 = $600 ($400 is the amount borrowed from
securities firms
• Maintenance margin: 30%
Margin trading
Margin trading
86
9/11/22
Short-Sale
Ü Example
On 17th, June, 20XX Mr. Speculator shorts 100 APPL
shares at $50 per share (total of $5,000)
• Initial margin: 50%, Investor has to deposit $7,500
(include $5,000 as the proceeds from short-sale and
$2,500 from the investors)
• Maintenance margin: 30%
Short-Sale
Ü Example
On 25th, June, 20XX price of APPL rises to $70 per share.
The market value of the APPL short-sale rises to $7,000.
- The maintenance margin: 30%, the speculator should have
in his/her account the amount of:
$7,000 + 30%×7,000 = $9,100
- Since the deposit of the speculator at the beginning is at
$7,500. The investor get a margin call and have to deposit
($9,100 – $7,500 = $1,600) more.
Short selling
Not Strongly
popular developed banned
2007 depression
2008 2009 11/2009
Developed
in some
securities
87
9/11/22
Overview
Ü Location
Ü Securities
Ü Risks
Ü Market
makers
Ü Settlement
Ü Regulations
88
9/11/22
Trading methods
Agreem
ent
OTC
Quotation
Market
makers
265
!
Buyers Agreement Sellers
Buyer’s Seller’s
brokerage firm! brokerage firm!
Settlement system!
266
Confirm the
transaction Transaction
system
selling order
Inform the
results
Inform the selling order
execution
89
9/11/22
Market Market
maker A maker B
quotation
Report the
execution
orders
OTC
Investor A Brokerage firm
central
Inform the
A confirmation system
result
quotation
Market
maker C
Ü Established in 1971
Ü A telecommunications network that links thousands of
geographically dispersed market – making participants
Ü Its electronic quotation system provides price quotations
to market participants on Nasdaq – listed stocks
Ü Brokers register with the SEC as dealers in OTC
securities. Security dealers quote:
n Bid prices at which they are willing to purchase securities
n Asked price at which the dealer is willing to sell securities
Ü A broker/dealer who receive a buy or sell order from an
investor can examine all current quotes, contact the dealer
with the best quote, and execute a trade
90
9/11/22
Quotation system
securities.
n Subscribers may enter the bid and asked prices
Quotation system
Ü Level 2
n Subscribers receive all bid and asked quotes but
cannot enter their own quotes
n These subscribers tend to be brokerage firms
that execute trades for clients but do not
actively deal in the stocks for their own account
n Brokers attempting to buy or sell shares call the
market maker who has the best quote to
execute a trade
Quotation system
Ü Level 1
n Subscribers receive only the median, or
“representative”, bid and ask price on each stock
n Subscribers are investors who are not actively
buying and selling securities, yet the service
provides them with general information
91
9/11/22
Non-Nasdaq
OTC market
92
9/11/22
LOGO
Chapter 5
REGULATION AND
INFORMATION DISCLOSURE
Terminology
English Tiếng Việt
Information disclosure Công bố thông tin
Market failures Các thất bại của thị trường
Information asymmetry Thông tin bất cân xứng
Adverse selection Lựa chọn bất lợi
Moral Hazard Rủi ro đạo đức
Externality Ảnh hưởng ngoại lai
Perfect competitive market Thị trường cạnh tranh hoàn hảo
Securities Commission Uỷ ban chứng khoán
Insider trading Giao dịch nội gián
Accounting fraud Gian lận kế toán
Market manipulation Thao túng thị trường
Securities Law Luật Chứng khoán
The Decree Nghị định
Circular Thông tư
Decision Quyết định
BA-2018
278
Contents
279
93
9/11/22
Content
280
Ø The risks that are generated from the trading activities to the
investors
Ø The risks from the financial services to the financial system
Ø The impact of the crisis on market to one country and to the
world
281
n Many suppliers with an insignificant share of the market. The decisions of
each supplier are too small to affect the overall market
n The trading of identical products. One product is a perfect substitute for
another
n Consumers have full information – about prices and quality of the products
n No barriers to suppliers entering and leaving the market, at least in the long-
run
94
9/11/22
Content
284
Asymmetric information
95
9/11/22
Asymmetric information
Ü Adverse selection:
n Before transaction occurs
Asymmetric information
Ü Adverse selection:
Take in example in Insurance:
- A Healthy person only have to pay $1,000/year for a life
insurance
- An Unhealthy person have to pay $5,000/year for a life
insurance
Asymmetric information
Ü Adverse selection:
If, due to the lack of information, the insurance company
could not decide whether a person is healthy or not. They
will assign an average premium for the insurance at $3,000/
year
Who do you think will be willing to buy the insurance?
96
9/11/22
Asymmetric information
Ü Adverse selection:
The same goes for stocks. if due to the asymmetric information,
the investor could not differentiate between good and bad
companies. He/she will decide to pay an average price.
Ø The good companies will refuse since they are being utterly
undervalued
Ø The bad companies will take immediately since they are being
overvalued
Ø All the stock markets will be flooded with bad companies
Ø The investors may decide not to invest, ever!
Asymmetric information
Ü Moral Hazard:
After the transaction, when the funds are provided to the
company. If the company does not disclose the information, the
investors will not know how well the company is doing or how
their funds are used.
The company may take part in risky investments or misallocate
the funds to suboptimal investments.
Asymmetric information
97
9/11/22
Externalities
Externalities
Content
294
98
9/11/22
295
Securities Commission
Securities Commission
99
9/11/22
Securities Commission
100
9/11/22
ü The Dodd Frank Act (Also called the Dodd Frank Wall Street
Reform and Consumer Protection Act of 2010 to reform in the
wake of financial crisis 2007-2009).
101
9/11/22
102
9/11/22
103
9/11/22
Content
310
Information disclosure
Information disclosure
104
9/11/22
Information disclosure
Information disclosure
Ü What to disclose?
THANK YOU!
105