A new rule issued by the Hanoi Stock Exchange, allowing brokerages to become securities market members, is expected to improve the trading quality of Vietnam’s securities market. (Source: baohaiquan.vn)Thenew market maker regulation, which will come into effect in July, is expectedto help improve market trading liquidity and help listed companies draw highercapital flows from investors.
Inaddition, the regulation will help Vietnam’s securities market develop furtherin scope and quality, and meet international securities trading standards.
Marketmakers play an important role in connecting demand and supply between buyersand sellers in the securities market to boost trading liquidity of securitiesproducts.
Byworking with market members, investors can easily create trading orders topurchase and/or sell securities products, especially those that have lowliquidity or no liquidity at all.
Whenan investor decides to buy and/or sell a securities product, in which otherinvestors have no interest, market makers must create their own sell/buy ordersso that the targeted product becomes tradable.
Thepurchasing price is the highest price level a market maker is willing to payfor the targeted securities product, and the selling price is the lowest whicha market maker is willing to accept.
Insome big stock exchanges around the world, such as the US Nasdaq Stock Marketand the New York Stock Exchange, the London Stock Exchange and the FrankfurtStock Exchange, there are always market makers. On the Nasdaq Stock Market,there are 14 market makers for each securities product.
Marketmakers can be brokerages, banks and investment funds. Securities issuers canassign one market member or more to carry out the trading of its securitiesproducts.
Inorder to become a market maker, a financial firm must meet requirements set theHanoi Stock Exchange (HNX), such as keeping the ratio of accumulated loss overcharter capital at under 50 percent, ensuring total loans do not exceed equityownership capital by more than three times, and maintaining the ratio ofavailable capital above at least 220 percent during the last 12 months.
Banksand investment funds that want to become market makers for fund certificates ofexchange traded funds (ETFs) must be selected by the fund management firms. Theapproval of market maker membership for those financial firms is carried out byreviewing their profiles, not inspecting their facilities.
Inearly May, the HNX issued a decision regulating the rights and obligations of amarket maker for the derivatives market, which is expected to go into operationthis quarter. The northern exchange also granted market membership to sixbrokerages, but since the product and market are quite new to investors and tradingfirms, none of those six companies have registered to become market makers forthe derivatives market.-VNA
VNA
