HNX’s efforts to improve trading qualityAug 22, 2017 198
A decision recently issued by the Hanoi Stock Exchange (HNX), allowing brokerages to become market makers, is expected to improve the trading quality of Vietnam’s securities market.
Decision 367/QD-SGDHN, which will take effect on July 1, aims to improve market trading liquidity and help listed companies draw greater capital flows from investors.
Stocks of Da Nhim-Ham Thuan-Da Mi (DHD) Hydropower JSC reach ceiling prices at the first trading session__Photo: Ngoc Ha/VNA
The new regulation will help Vietnam’s securities market develop further in scope and quality, and meet international securities trading standards.
Market makers play an important role in connecting demand and supply between buyers and sellers in the securities market to boost trading quality of securities products.
By working with market makers, investors can easily create trading orders to purchase or sell securities products, especially those that have low liquidity or no liquidity at all.
When an investor decides to buy or sell a securities product, in which other investors have no interest, market makers must create their own sell/buy orders so that the targeted product becomes tradable.
Under the new regulation, the purchasing price is the highest price a market maker is willing to pay for the targeted securities product, and the selling price is the lowest which a market maker is willing to accept.
Brokerages, banks and investment funds may also become market makers. Securities issuers can assign one market member or more to carry out the trading of its securities products.
In order to become a market maker, a financial institution must meet requirements set by the HNX, such as keeping the ratio of accumulated loss to charter capital at under 50 percent, ensuring total loans do not exceed equity by more than three times, and maintaining the ratio of liquid capital of at least 220 percent during the last 12 months.
Supervisory banks and investment funds that wish to become market makers for fund certificates of exchange traded funds must be selected by the fund management companies. The approval of market maker membership for those financial institutions is carried out by reviewing their profiles instead of inspecting their physical foundations.