8/7/20

LOGO

CHAPTER 1:
OVERVIEW OF
THE STOCK
MARKET

What do you do if you have 100

USD left?

SECURITIES (STOCK) MARKET?

• A component of the
wider
financial
market where
securities can be
bought and sold
between subjects of
the economy, on the
basis of demand and
supply.

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Definition

Financial
Market

Capital Monetary
Market Market

Securities Long term

Market loan market

The financial market is the place where financial instruments are traded.
The securities market is a part of the Financial market

REAL ASSETS AND FINANCIAL ASSETS

Financial Instruments
Những công cụ trên thị trường tiền tệ Monetary Market Instruments
1. Trái phiếu kho bạc 1. Treasury Bonds
2. Trái phiếu đô thị 2. Municipal Bonds
3. Chứng chỉ tiền gửi 3. Certificates of Deposit
4. Thương phiếu 4. Commercial Bills
5. Hợp đồng mua lại 5. Repurchase Arrangements (RAs)
6. Những chấp nhận của ngân hàng 6. Banker’s Acceptances (BAs)
7. Các quỹ dự phòng 7. Reserve Funds
Những công cụ trên thị trường vốn Capital Market Instruments
1. Trái phiếu tiết kiệm 1.Saving Bonds
2. Tín phiếu kho bạc 2.Treasury Bills
3. Trái phiếu kho bạc 3.Treasury Bonds
4. Trái phiếu đô thị 4.Municipal Bonds
5. Trái phiếu công ty 5.Corporate Bonds
6. Cổ phiếu 6.Stocks
7. Chứng chỉ quỹ 7.Fund Certificates
8. Công cụ phái sinh 8.Derivatives

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Characteristics

Free market, close to perfect

competition

Direct financing The

stock
market

Attached to both long term

and short term financing

Capital turnover in the financial market

Indirect finance

Financial
Capital intermediary
Capital

Who has capital Who need capital

1. Family Capital Capital Capital 1. Family
2. Corporation 2. Corporation
3. Government 3. Government

Direct finance
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Role of securities market

Mobilizing capital for governments,

Companies, Funds

Provide investment environment

Creating liquidity for securities

An economic and corporate

thermometer

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Equity call and distribution

Financial
Intermediaries Capital

-Corporations
-Government
The stock Capital
market

A macroeconomic instrument

Saving - investing

Real Financial
Real estate assets asset
Precious stone Securities

Supplying liquidity

The stock market is a place where investors

could change their investment decisions, convert
securities to money and other securities.

Liquidity is one of the most attractive characteristic of a

security.

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Operation Principles

Information
Disclosure

Intermediary

Auctioning

Information disclosure

• Requirements:
- Accuracy
- Adequacy
- Timely

Problems

1. Information Disclosure in the Vietnamese

stock market? The regulations? The situation?
Your suggestion?

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Operation Principles
• Intermediary:
- Transactions on the stock market are conducted via
intermediaries (brokers)
- Who are intermediaries on the stock market?
- Avoiding counterfeit securities
• Auctioning: Prices are determined using an
auctioning mechanism
- In the primary market: issuing securities by
auctioning
- In the secondary market: determine securities’ price
via call market matching and continuous order
matching

Target of securities market

- Efficiency: make sure the efficient and explicit of

the stock market.

Efficient Market Hypothesis (E.M.H): Financial

markets are informational efficient, that is
information related to stock price is fully and
instantly reflected in price

Target of securities market

• Fairness: Protect the legitimate benefits of

investors

• Stability: Prevent negative actions on the stock

market and minimize the negative affect of the stock
market on the economy

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Market structure

•Primary market
The floatation
•Secondary market
of equity

•Stock exchange
Registration •OTC

•Market for stocks

Instruments •Market for bonds
•Market for derivatives

Primary market

Primary market: the market that deals with issuing

new securities. Also known as ‘new issue market’.

Do these transactions belong to the primary market?

A corporation issuing shares for dividends
A corporation issuing bonds to raise funds
The government issuing bonds

3/1/2010

Primary Market
v Significance

o To the stock market

• Generating ‘goods’ for trading
• Making the basis for the secondary market
• Initial measurement of investors’ expectations

o To the economy
• Raising funds

3/1/2010

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Secondary Market

Secondary Market: The market where investors

purchase securities or assets from other investors,
rather than from issuing companies themselves

3/1/2010

Secondary Market

v Significance

o To the stock market

• Maintaining liquidity
• Motivating the primary market
• A continuous measurement of investors’
expectations

o To the economy
• Income distribution

3/1/2010

True or False question

There is no relationship between the primary

market and the secondary market. True of False?

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Quiz

1. The stock market is a part of

a. The credit market
b. The interbank market
c. The equity market
d. The open market

www.themegallery.com Company Logo

2. Primary issues are used by

a. Companies for the purpose of setting up new
business or for expanding or modernizing the
existing business
b. Funds for the purpose of setting up portfolio
management
c. Government for the purpose of budget
d. a, b, c

3. The primary market performs

a. the crucial function of facilitating capital
formation in the economy.
b. marketability of existing shares
c. the purpose of risk management for investors
d. a, b, c

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SECURITIES MARKET -
PLAYERS

MARKET PLAYERS

- Who are they? Household

- What do they want? sector

- How can they do?

Financial
institutions

Government Business
sector sector

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(1) HOUSEHOLD SECTOR

• Everyone seeking to satisfy unlimited wants

and needs.
• Individual investor (including farm household)
• Makes an investment into one or more
categories of assets --- equity, debt securities,
real estate, currency, commodity, derivatives
such as put and call options, etc. --- with the
objective of making a profit.
• Manage risk (Risk – taking)

Investors & Speculators

(2) BUSINESS SECTOR

• Make use of securities market to manage
differences in their supply and demand for
capital and to manage risk.
• Discussion: Difference between household
and business sector in securities market?
• Raising fund: issuing bonds or stocks/shares
– Marketing their securities
– Minimizing cost of the capital
• Manage risk (business risk & investment risk)

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Business sector

Limited Joint stock

State company
company company
• Debt • Debt • Debt
instrument instrument instrument
• Internal fund • Internal fund • Equity
instrument
• Internal fund

(3) GOVERNMENT SECTOR

• Finance their expenditures by borrowing

• Governments have a special advantage in
borrowing at the lowest rates
• Taxing power
• Special role of the government is in regulation the
financial environment
– Protect participants
– Financial stability
– Politics
• Conduct fiscal policy
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Governments
• Central government:
– Treasury notes (T-notes)
– Treasury bonds (T-bonds)
• Agencies of central government:
– Federal National Mortgage Association (Fannie Mae)
– Borrows money by issuing securities and lends this money
to savings & loan institutions to be lent in turn to
individuals borrowing for home mortgages
– Can be viewed as branches of the government, their debt is
fully free of default risk
• Municipal bonds: issued by state & local governments

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(4) FINANCIAL INSTITUTIONS

• Provide financial services for investors and

issuers in the stock market
• Investment companies: pool together and manage
the money of many investors, also arise out of the
“smallness problem”
– Mutual fund
– Pension fund
– Hedge fund
– Venture capital fund
– Foundation fund, ….
• Insurance companies
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Securities companies

- Securities company is defined as a legal institutions

takes part in one of such actions: Brokerage, Self-
trading, Registry and Custody services, Issue
Underwriting, Asset management, Investment Advisory
or other securities skills.
- According to current Security Law, security business
institutions consist of Security firms, Managed fund
companies, Asset management companies and
Investment banking firms.

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STOCK PRICE BOARD

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Economic theories of regulation -

solution

• Cross-subsidization. Regulation can sometimes

influence the price that firms can charge.
– Ex: Banks are often under pressure to provide
“simple” bank accounts at very low cost to customers
of low incomes, insurance companies are pressed to
provide low cost, basic pension facilities
⇒public good arguments: everybody benefits if low
income people can access to bank deposits and
loans /have adequate pensions
⇒Low income households benefit at the expense of the
better off

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