New market rule to improve trading quality

The new market maker regulation, which will come into effect in July, is expected to help improve market trading liquidity and help listed companies draw higher capital flows from investors.

In addition, the 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 liquidity of securities products.

By working with market members, investors can easily create trading orders to purchase and/or sell securities products, especially those that have low liquidity or no liquidity at all.

When an investor decides to buy and/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.

The purchasing price is the highest price level 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.

In some big stock exchanges around the world, such as the US Nasdaq Stock Market and the New York Stock Exchange, the London Stock Exchange and the Frankfurt Stock Exchange, there are always market makers. On the Nasdaq Stock Market, there are 14 market makers for each securities product.

Market makers can be brokerages, banks and investment funds. 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 firm must meet requirements set the Hanoi Stock Exchange (HNX), such as keeping the ratio of accumulated loss over charter capital at under 50%, ensuring total loans do not exceed equity ownership capital by more than three times, and maintaining the ratio of available capital above at least 220% during the last 12 months.

Banks and investment funds that want to become market makers for fund certificates of exchange traded funds (ETFs) must be selected by the fund management firms. The approval of market maker membership for those financial firms is carried out by reviewing their profiles, not inspecting their facilities.

In early May, the HNX issued a decision regulating the rights and obligations of a market maker for the derivatives market, which is expected to go into operation this quarter. The northern exchange also granted market membership to six brokerages, but since the product and market are quite new to investors and trading firms, none of those six companies have registered to become market makers for the derivatives market.