General Theory on Securities and the Securities Market

CHAPTER 1: GENERAL THEORY ON SECURITIES, THE SECURITIES MARKET, AND SECURITIES MARKET LAW

CONTENT

  • General Theory on Securities

  • Overview of Securities Market Law

1. General Theory on Securities and the Securities Market

A Brief Summary of the History and Development of the Stock Market

  • Mid-15th Century: Emergence of spontaneous primitive markets.

  • Late 15th Century: Formation of organized marketplace.

  • 1929: Flourishing of markets with the establishment of simple stock exchanges.

  • 1929–1987: Stable development of the market.

  • 1987–Present: Growth phase of the market.

1.1. Overview of Securities

  • Definition of Securities:

    • Securities are assets recognized for evidencing holders' legitimate rights and benefits to the assets or capital shares of issuing organizations.

    • They may take various forms such as:

      • Certificated documents.

      • Book entries.

      • Electronic data.

  • Categories of Securities as defined by Clause 1, Article 4 of the Law on Securities (2019):

    • a) Stocks, bonds, fund certificates.

    • b) Warrants, covered warrants, share purchase rights, depository receipts.

    • c) Derivatives.

    • d) Other types specified by the Government.

1.1.2 Characteristics of Securities

  • Liquidity: Ability to turn an asset into cash quickly and with low cost.

  • Profitability:

    • Trading securities can yield profits.

    • Rights related to securities, e.g., stocks' dividends, bond interest, etc.

  • Risks: Includes systematic and unsystematic risks.

1.1.3. Types of Risk in Securities

  • Systematic Risk:

    • Affects the entire securities market.

    • Factors beyond control, cannot be avoided.

  • Unsystematic Risk:

    • Affects specific issuers' securities.

    • Can be controlled or minimized through asset allocation and diversification.

1.1.4. Classification of Securities

  • Based on Ability to Identify Holder:

    • Registered Securities: Require owner registration and transfer procedures.

    • Bearer Securities: Ownership is by possession, simpler transfer processes.

  • Based on Nature:

    • Traditional Securities: Include stocks and fund certificates.

    • Derivatives: Financial instruments like options and futures.

1.2. Detailed Types of Securities
1.2.1. Stocks

  • Definition: Stocks are securities that certify holder's rights and interests in a portion of the issuer's share capital.

  • Issuers: Joint-stock companies.

1.2.2. Fund Certificates

  • Definition: Securities certifying ownership in an investment fund.

  • Issuers: Securities investment funds.

1.2.3. Bonds

  • Definition: Bonds are securities certifying rights and interests to part of the issuer's debt.

  • Issuers: Limited Liability Companies (LLC), Joint-stock companies, Governments.

1.2.4. Derivatives

  • Definition: Derivatives are financial instruments that derive their value from underlying assets, forming contracts that determine the right to buy/sell those assets in the future.

  • Types of Derivatives:

    • Options: Certify buyer's rights to buy/sell underlying assets at a specified price by a specified date.

    • Futures: Agreements to buy/sell at a predetermined price on a specified date.

    • Forwards: Similar to futures but more customizable and traded OTC.

1.2.5 Types of Options

  • Call Options: Grant the right to buy underlying assets.

  • Put Options: Grant the right to sell underlying assets.

1.2.6. Other Securities

  • Share Purchase Rights: Short-term rights for existing shareholders to buy new shares.

  • Warrants: Issued with bonds or preferred stocks; allow holders to buy a specified amount of common stocks at a set price.

  • Covered Warrants: Allow holders to buy/sell underlying securities at predetermined prices before or on specific dates.

2. Overview of Securities Market

2.1 Economic, Political, and Legal Context

  • Economic Conditions: Need for new funding channels, equitizing state-owned enterprises, establishment of new joint-stock companies.

  • Political Conditions: Stable political environment ensuring economic integration.

  • Legal Conditions: Relevant laws such as the Law on Enterprises guiding operations.

  • Technical and Human Resources: Development of the State Securities Commission and training for officials.

2.2 Brief History of Vietnam's Securities Market

  • 1992: Formation of the Capital Market Research Team.

  • 1993: Establishment of the Capital Market Research Department.

  • 1996: Establishment of the State Securities Commission.

  • 1998: Decrees and decisions for market development.

  • 2000: Establishment of the Ho Chi Minh City Securities Trading Center.

2.3 Definition and Characteristics of the Securities Market

  • Definition: A venue for trading securities and aggregating market orders (Clause 27, Article 4 of the Law on Securities).

  • Characteristics:

    • Trading objects are securities (unique commodities).

    • Specialized market within financial markets.

    • Transactions typically occur through intermediaries.

    • Complex and risky environment with specific principles.

    • State participation in operations.

2.4 Classification of the Securities Market

  • Based on Organizational Methods:

    • Centralized Market: Trades on a defined trading floor regulated by the Stock Exchange.

    • Decentralized Market (OTC): Trades conducted outside stock exchange with no fixed location, often lower quality securities.

  • Based on Nature of Capital Circulation:

    • Primary Market: New capital is raised via initial offerings of securities.

    • Secondary Market: Existing securities are traded among investors.

2.5 Principles of Operation in the Securities Market

  • Fairness and Transparency Principle: All market entities treated equally; transparent operations required.

  • Auction Principle: Different auction methods for price negotiation, including direct, indirect, and automated auctions.

  • Intermediary Principle: All transactions must involve intermediaries (securities companies).

2.6 Roles of the Securities Market

  • Serves as a channel for capital mobilization and circulation.

  • Enhances competition and operational efficiency among enterprises.

  • Diversifies investment forms.

  • Reflects and impacts the status of enterprises.

  • Assists the government in macroeconomic regulation.

2.7 Necessity for Regulation

  • Establishes fair and transparent investment environments.

  • Protects investors, especially individuals with limited resources.

  • Eliminates illicit activities like insider trading.

  • Ensures overall stability of the financial system.

3. Securities Market Law

3.1 Purpose and Scope

  • Defines legal norms regulating interactions among participants in the securities market.

3.2 Roles of Securities Market Law in Vietnam

  • Establishes a framework for market stability and legal assurance for investors.

  • Promotes openness of enterprises in the market.

  • Coordinates Vietnam's integration into global capital markets.

3.3 Legal Relations in the Securities Market

  • These relations encompass the creation and operation of commodities within the market, governed by securities law.

3.4 Elements Constituting Legal Relations

  1. Legal Regulations

  2. Legal Events

  3. Legal Relations

  4. Subjects: Includes issuers, investors, and entities related to the market.

  5. Objects: Rights and benefits derived from specific types of securities.

  6. Contents: Involves securities offerings, trading, regulations of business entities.