Strengthening risk management in the business of the joint stock securities company in vietnam

INTRODUCTION
1. Introduction and Motivation
Vietnam Stock Exchange have been developing for more than 13 years at
the end of 2013. During that period, the market used to be considered as one of the
most developed exchange in the world with the fastest growth and capitalization.
Accordingly, a lot of securities companies have being established which providing
financial services for the market and take opportunities from the market as well. At
the beginning, there were only 4 securities companies, but these number increased
significantly in the next few years. At the end of 2012, the exchange has 105
securities companies established which focused on 4 main operations: brokerage;
principal trading; underwriting and consulting. As a result, securities companies
have contributed to improve liquidity of the market, attract more and more
domestic and foreign capitals for economy and promote the development of the
market.
However, the unexpected movement of the stock market and financial crisis
of 2008 have serious impacted on the business of Vietnam securities companies
last few years. Accordingly, many weakeness of the company have releaved such
as number of securities company over than the size of the market; weak financial
capacity; low competitive ability; inefficient corporate governance. Consequently,
many companies have experienced the poor business performances, even falled
into several years of losses, insolvency. Specially, some of them have being closed
up as the requirement of State Securities Commission of Vietnam.
In fact, there are a lot of causes explaining the weakness of securities
companies, but one of main reason is due to bad risk management. In some
companies, risk management have limited in papers or treating risks in order to
minimize the loss, rather than warning the signs of potential lossing.
From the corporate governance point of view, risk management is
considered as the important instrument that supporing the company to make
business decisions and doing business in transparency and effectively. Many
researches have been doing on the impact of risk management on enterprises. Clup
(2002) investigates the relationship between capital structure and risk management

strategy that the companies employ. The study concludes that whenever
assumption of Modigliani & Miller change, risk management will increase the
value of the companies through improving expected cash flows and reducing costs
of capital.
In Vietnam, the research of situation of risk management in securities
companies has not done yet offically and professionally. Therefore, within the
scope of doctor’s research and with desire to study and evaluate the situation of
risk management in the securities companies, then contribiting the ideas to
criticism of the securities companies, help policy makers and managers to make
risk management decision in effectivelly, the topic "Strengthening risk
management in the business of the joint stock securities company in Vietnam "has
been selected as doctoral thesis.
2. Literature review
Risk management is a relatively recent corporate function. Historical
milestones are helpful to illustrate its evolution. Modern risk management started
after 1950s. Since the early 1963, the concept of risk management evolved
considerably by the book of Robert and Bob Hedges. Accordingly, risk
management is a process that can be evaluated, controlled, and monitored all risks
and their dependences to which the company is exposed.The goal of risk
management is to create a reference framework that will allow companies to
handle risk and uncertainty. Risks are present in nearly all of firms’ financial and
economic activities. Therefore, many researches have been doing and following
some main issues:
First, how can risk management be implemented in the companies? The study
of Clup (2001) focuses on detailing the process of risk management, including
indentify, analyse, assess, report, treat and control risk.
Second, how can risk management be impacted on the value of firm? Clup
(1995) explains how risk management can increase the value of firm in different
ways in inefficient market. The ojective of managers, shareholders concentrate on
maximizing the value of firms through reducing costs of capital and increasing

expected cash flows.
Third, how to measure risk management implementation of the companies.
There is limited research on criteria to be used in assessing the implementation
of ERM in institutions. Most of the criteria used has been developed by consulting
firms such as Deloitte with their risk intelligence maturity model and Standard
and Poor‟s with the criteria used for measuring the implementation of ERM to
be used in rating insurance companies (Standard &
Poor‟s
Ratings Direct, 2007).
On the other hand, Liebenberg and Hoyt (2003) uses the appointment of a
Chief Risk officer (CRO) as a signal of ERM implementation. The key
limitation of this method is that it does not seem to take into account the fact that
there are companies where ERM implementation is championed by the Chief
Audit Executive (CAE) thus some companies may be judged as not having
implemented ERM when in actual fact they have. This method also does not
consider the transitory nature of ERM implementation thus only assumes two
states, that is ERM is fully implemented or not implemented at all.
Four, which factors can be impacted on the risk management implementation
of the companies. Kleffner at all (2003) concludes that the bigger companies have
implemented risk management better than smaller companies, then their values
have increased better.
Although there are a lot of researches on ERM, but some limitations are still
available as follows:
- Most of studies have investigated the companies in developed markets, and
some in developing markets
- Researches have concentrated on financial institutions such as commercial
banks or insurance companies. There is limited researches on securities companies,
investment banks, including Vietnam. In fact, these companies are doing risky
businesses, so that it is necessary to implement risk management.
- From the macro-economic management, the objective of ERM is protecting

investors and the market. Therefore, the companies must implement risk
management according to the law. Besides, the cost of the implementing is
significant. However, there is no research on the relationship and cost of risk
management in the companies.
- The methodology of measuring risk management implement is limited and
controversially.
In Vietnam, risk management of securities companies has been concerned by
researchers, policy makers and securities companies as well. Le Cong Dien (2010)
studied the issues “Risk management of joint stock securities companies – The
status and solutions”. The research analysed the current situation of risk
management of securities companies based on each operation process of the
companies: brokerage, principal trading, underwriting, accounting, then identify
the risk can be exposed to the companies. After that, the study submits some main
solutions to improve risk management of the companies [11]. However, the study
has not yet analysed detail of system risk and cross risk in the business of the
companies. Also, the study has not clarified the situation of treating risk, using risk
management instruments, hedging methods of the companies.
The article of Le Hoang Nga (2013) identifies some main risk of the securities
companies and then provides ERM process for the companies. However, the study
limited in theory. Other articles focus on introduction of risk management and
guide how to implement.
In conclusion, most researches of risk management of securities companies in
Vietnam have concentrated on identifying and analyzing each type of risk exposed
to the companies. In business, there is no way of avoiding risk without giving up
the opportunity to gain profits. Therefore, to be competitive, companies must
learn how to manage risk intelligently. This means identifying risks early,
expecting the unexpected and knowing which risks are worth taking and which to
avoid. The main objective of this study is to assess whether the level of ERM
implementation in securities companies in Vietnam causes an increase in the value
of those companies and establish the significant factors that influence the level of

ERM implementation
in securities companies. As a results, some main solution
will be provided to hepl the companies implement risk management more
effectively.
3. Research purposes
Theoretical risk analysis of securities companies and charateristics of risk
management of joint stock securities companies. Overview risk management
process of securities companies; providing criteria measuring of risk management
implementation and listing main factors impacted on risk management
implementation of securities companies.
Identifying and analyzing type of risk of securities business including
systematic risks and specific risks based on doing survey. Accordingly, assessing
the current implementation of risk management process, using risk management
instruements, appying methods of treating risks in securities companies.
Based on vision and mission of the stock market and securities companies,
combines with resuts of the survey, solutions of improving risk management of
securities companies are suggested in order to help the companies increase their
value, market share, position and stainable growth as well.
4. Scope of research
The research focuses on analyzing type of risk, risk management process,
risk management implementation and risk management instruments of Vietnam
joint stock securities companies.
The research includes all joint stock securities companies in Vietnam (listed
and unlisted companies) untill 31/12/2013, combining with researching
experiences of risk management of other countries in the world.
5. Methodology
To accomplish the objectives of the study, the research appliesthe method of
analysis, synthesis and comparative collation, inductive problem. Based on the
method of dialectical materialism and historical materialism to review, evaluate
and clarify practical problems, draw the principal needs to be resolved to propose

solutions and recommendations.
In addition, the research also uses a survey method to interview risk
managers of securities companies, collects statistical data from the companies’s
financial statement, annual report of State Securities Commission of Vietnam,
based on EPIDATA and SPSS software to analyze, graph and calculate the
correlation coefficient between random variables.
The research also inherits some of the results of the scientific works related
to the study which analyzing deeply the concerned issues
6. Structure of research
Beside introduction and conclusion, the research includes 3 chapters
follows:
Chapter 1: Theoretical background of risk management of the business of
joint-stock securities companies
Chapter 2: The current situation of risk management of joint - stock
securities companies in Vietnam
Chapter 3: Solutions for strenthening the risk management implementation
of joint-stock securities companies in Vietnam
CHAPTER 1: THEORETICAL BACKGROUND OF RISK MANAGEMENT
OF THE SECURITIES COMPANIES BUSINESS
1.1. OVERVIEW OF RISK OF SECURITIES COMPANIES BUSINESS
1.1.1. Definition and characteristics of risk of the securities companies
business
Risk of securities business is defined as unexpected events which exposed to
the losses of the company’s assets, losses of profits or more expenses to fullfil a
certain business operation. The concept consists of two main points: (1) the
changes; (2) results of unexpected changes. The changes is considered as
uncertainty of issues which can be happened in the future and can not estimated the
results or probability of exposures certaintly. In securities business, there is no
way of avoiding risk without giving up the opportunity to gain profits. Therefore,
to be competitive, companies must learn how to manage risk intelligently. This

means identifying risks early, expecting the unexpected and knowing which risks
are worth taking and which to avoid.
1.1.2. Type of risk of the securities companies business
1.1.2.1. In term of business behaviour
Based on this criteria, risk of securities companies business can be classified
into systematic risk and specific risk of each business operation.
1.1.2.2. In term of source of exposures
Accordingly, risk can be grouped into system risk and unsystem risk
1.1.2.3. The interaction between risk
The analysis of the types of risks are often quite independent but in fact
there is close relationship between each other. Because of that, risk management of
securities companies is not only managing each type of risk independently, but
also need having a strategy which manage the risk systematically and intergratedly
to achieve effective performances.
1.1.3. Causes of risk exposed to the business of securities companies
- Objective events
- Subjective issues from securities companies
- Issues from customers
1.2 RISK MANAGEMENT OF SECURITIES COMPANIES BUSINESS
1.2.1. Definition and characteristics
Securities companies risk management is, in essence, the latest name for an
overall risk management approach to business risks. Precursors to this term include
corporate risk management, business risk management, holistic risk management,
and integrated risk management. Although each of these terms has a slightly
different focus, in part fostered by the risk elements that were of primary concern
to organizations when each term first emerged, the general concepts are quite
similar. Enterprise risk management is defined as:
“The process by which securities companies in all operation assess, control,
exploit, finance and monitor risks from all sources for the purpose of increasing
the company’s short and long term value to its stakeholders.”

Risk management of securities companies business has some charateristics:
- It is important role of corporate governance of the securities companies
- It has some same characteristics of banking risk management
- It can be implemented through capital management
1.2.2. Why joint stock securities companies have to implement risk
management
The main capital market imperfections used in the literature as a basis for risk
management rationales that will be explained in detail in the sections. It is
important to specify that the various positive theories to explain corporate risk
management rely on different corporate objectives (e.g. firm value, cash flows,
pre-tax income). For instance, the corporate tax burden can be reduced by hedging
pre-tax income, the cost of financial distress can be lowered by hedging total cash
flow, and investment and financing policies can be coordinated by hedging cash
flow before investment spending (as will be explained below). Nevertheless, these
activities sometimes do not work in the same direction , that is, they can reduce the
volatility of some variables but simultaneously increase the volatility of others.
Consequently, there exists the possibility of conflicts between different corporate
targets that have to be taken into account when determining the risk management
strategy. They can be avoided through the selection of appropriate hedging
instruments that are independent of each other and can thus be employed to hedge
different objective values (Froot, Scharfstein and Stein, 1993; Graham and Smith,
1999; Smith, 1995).
1.2.3. The steps of risk management
Enterprise risk management actually represents a return to the roots of risk
management. However, gaining the ability to quantify exposures with a far less
sophisticated approach than can be used for most hazard and financial risks
presents new challenges. Although consideration of operational and strategic risk
is important, the lack of data and the difficulty in predicting the likelihood of a loss
or the financial impact if a loss were to occur make it hard to quantify many risks a
firm faces. That in itself is the challenge that enterprise risk management provides.

Nevertheless, the basic approach of identifying, measuring, evaluating, controlling
and monitoring risk remains the same. The steps of enterprise risk management are
quite familiar to traditional risk managers. Most commonly they are:
• Risk Identification – Identify risk on an enterprise basis
• Risk Analysis – Measure and report risk exposure
• Risk Response – Formulate strategies to limit risk
• Risk Control – Implement strategies
• Risk Monitoring – Monitor results
• And repeat…
Except for minor changes in wording, the steps of enterprise risk management
are the same as those first enumerated by Mehr and Hedges in 1963. Enterprise
risk management is risk management applied to the entire organization. The basic
approach, the goals and the focus of enterprise risk management are the same as
those that have worked so effectively for traditional risk managers since the field
was first developed.
1.2.4. Measuring ERM implementation of the securities companies business
Presence of a Chief Risk Officer (CRO)/Risk champion - Risk managers
have an important role in the implementation of risk management in institutions.
Liebenberg and Hoyt (2003) studied the determinants of ERM as evidenced by the
appointment of a Chief Risk Officer and observed that though there was an absent
explicit disclosure for ERM implementation, the appointment of a CRO can be
taken as a strong signal of ERM implementation in the companies. Beasley et al
(2005) also investigated whether the presence of a CRO is positively associated
with the deployment of ERM. The study finds that the presence of a CRO/Risk
champion in senior management significantly increases the entity‟s stage in ERM
implementation. Therefore, we investigate the following hypothesis;
Risk management policy represented by risk appetite framework of the
securities companies, risk limitation for each operation, applying risk management
instruments and software.
Emerging risk warning system: this system focuses on controlling the risks that

may occur in the process of implementing the securities companies business, assessing
the level of market risk, operational risk, settlement risk and total risk of securities
business.
Risk analysis models: applying value at risk, scenario analysis, tree decision,
simulation model are considered as a signal of risk management implementation.
Internal control is essentially a series of integrated activities, measures, plans,
views, rules and policies and efforts of all members of the company to ensure efficient
operation , achieve the company’s goals.
Capital safety: securities companies is types of conditional business with
required capital according to the securities law.
1.2.5. Factors impacted on risk management of the securities companies
business
• Organizational structure
• Size and financial ability
• Human resource
• Information technology
• Administrative management
• Regulations on risk management of the securities companies.
1.3. Risk management experiences of securities companies in the world
1.3.1. USA
- Capital condition is one of the useful instrument which used by SEC to
conduct the securities companies business.
- Investment banks, securities companies are renforced to follow the risk
management regulations
- Risk management model is implemented from the Risk Council Board of
Directors; Executive Committee; Risk Committee; Committee business practices;
Credit Policy Committee; Finance Committee; Operational Risk Committee…
1.3.2. Thailand
- Securities companies risk management is also done through capital
management.

- Thailand stock exchange also require securities companies have internal
compliance department, internal audit department independently.
- The risk management of securities companies in Thailand has been done
through the Central Depository and Clearing (Thailand Securities Deposit -TSD)
1.3.3. China
- Capital condition is one of the useful instrument which used by China
stock exchange to conduct the securities companies business.
- The securities companies shall be subject to surveillance activities,
implementation of risk management regulations prescribed by China Securities
Regulatory Commission - CSRC.
- Securities companies are classified into grade from A to E, in each class,
the company can be classified into 11 smaller sub-classes (AAA, AA, A, BBB,
BB, B, CCC, CC, C, D, E). Rating of A, B, and C show that the risk management
capabilities of the company's securities meet the current business, in which sub-
classes reflect the level of risk management of the company
1.3.4. Lessons for joint stock securities companies in Vietnam
- The securities company is the kind of business conditions, including the
legal capital for each type of business and closely monitored by Securities
commission.
- Securities Commission issued regulations on risk management and
compliance have forced securities companies in order to create the second layer of
risk protection
- Securities Commission also provides remedies for violations of securities
regulations, including administrative sanctions and criminal.
- Ranking and classification of securities companies.
- Risk Management is essentially an enterprise operating activities.
- Securities companies build risk management department independently.
CHAPTER 2 – THE SITUATION OF RISK MANAGEMENT OF THE
SECURITIES COMPANIES BUSINESS IN VIETNAM
To assess the risk management implementation of securities companies in

Vietnam, the research have done a survey for all joint stock companies. The
questionaires have interviewed dean of risk management department (if possible)
or Internal controlling/auditing department. The survey focuses on identifying the
types of risk of the securities companies business and assessing the level of risk
management implementation as criteria mentioned in the chapter 1. Moreover, the
database have been collected from financial statement of the securities companies
and its websites as well during the period of 2008 – 2013. Some information have
also collected from websites of Ho Chi Minh stock exchange and Hanoi stock
exchange. EPIDATA and SPSS software are used to support input and output of
the survey.
In fact, number of securities companies have increased from 4 companies in
the beginning period of the market to 105 companies at the end of 2008. This
number remains until 2013. However, among 105 questionaires have been sent to
these companies, only 77 valid of them are obtained. The missing is due to without
fully feedback, financial statement, merger & acquisition. The results of the survey
as following:
2.1. IDENTIFYING THE RISK OF THE SECURITIES COMPANIES BUSINESS
2.1.1. Overview of securities companies business
Ownership structure. Currently there are 44% of survey securities
companies having foreign capital, in which 13 companies have maximum foreign
capital of 49%, 3 companies with more than 40%, 8 companies with the range of
5% - 30% and the remaining companies under 5%. In term of charter capital, total
foreign capital is about 4.510,13 billion dong and accounts for 12,88% of total
charter capital of all securities companies in 2013.
Operational business. According to the results of the survey, during the
period of 2008 – 2013, on average 2% of the companies has been providing only
conslting service for the market, meanwhile 60% of the companies have been
doing from 2 to 3 services, 38% of the companies supplying full main securities
services for the market.
Capital size. Capital of the securities companies have increases continuously

last years, but their financial capability are still low. At the end of 2013, there are
only 26,8% of the companies have enough capital to do full 4 main operations, in
which number of companies with the capital of more than 1000 billion dong is
very limited and reduced gradually last 3 years.
Financial ability. Financial ability of the securities companies is smaller
than other financial institutions, even the capital have increased significantly. At
the end of 2013, the total value of asset of listed commercial banks is about
271.700 billion dong, of listed insurance companies is 5,150 billion dong, of
securities companis is only 1.428 billion dong which account for nearly 30% of the
insurance companies on average.
Profitability. From 2011 until now, the stock exchange has recovered and
increased slightly, therefore profitable ratio of the securities companies have
improved as well, but still negative numbers.
Liquidity ability. Most of securities companies have good liquidity ratios, in
which 27 companies have more than 200% of current ratio (current asset to current
liability), 7 companies with the number of 150%-200% and 3 companies with
100% - 150% as the results of the survey.
2.1.1. Identifying risks of the joint stock securities companies in Vietnam
Based on the results of the survey with the valid of 77 companies, SPSS
software is used to identify main risk of the seurities companies business. The
model of 34 variables includes all types of risk which can be impacted on the
operating of the companies. After running sub-model, Exploratory analysis is
applied together with Varimax method in order to analyse 34 variables.
Table 2.12 KMO và Bartlett’s test
KMO and Bartlett's Test
Kaiser-Meyer-Olkin Measure of Sampling
Adequacy.
.542
Bartlett's Test of
Sphericity

Approx. Chi-Square 1539.845
df 561
Sig. .000
KMO (Kaiser – Meyer – Olkin) and Barlett testing are also applying to test
reasonable of the variables. If the value of KMO from 0,5 to 1, the result of
analysis can be accepted. Barlett test the hypothesis H0: correlation of the
variables is zero. If the testing is valid (Sig.<0,005), there is correlation between
variables. The results of the survey show in the table 2.12. with the value of KMO
is 0,542. It means that Exploratory analysis is resonable and Sig. is lower than
0,005 that proving the correlation between variables.
Next, principal componants analysis is also applied for identifying factors
that explaining te best variance of the total sample. In term of Kaiser, if the value
of Eigenvalue lower 1, that factor will be invalid. The results of the survey
concludes that there are 10 factors with Eigenvalue higher than 1 and acceptable.
Table 2.15 Combining risk factors of the securities companies business
Risk factor Factoring ratio
Systematic risk
Interest rate changes 0.888
Lack of information 0.837
Lack of valid information 0.835
Lack of law/regulations 0.809
The changes of the law 0.795
Managing information later 0.792
Wrongly practice the law 0.790
The changes of CPI 0.782
The changes of GDP 0.782
The changes of exchange rate 0.772
Weather risk 0.521
Unsystematic risk
Wrongly investing 0.928

Poor managing ability of managers 0.837
Wrongly estimating 0.825
Unsuitable organizational structure 0.786
Lack of operating process 0.758
Technical mistakes 0.744
Moral hazard 0.735
Unreasonable bonus policy 0.682
Less strict of controlling 0.677
High leverage 0.664
Lack of capital 0.625
Credit risk 0.613
Settlement risk 0.595
Extraction Method: Principal Component Analysis.
After defining the factor, Varimax method is used to find the best value. The
exploratoty analysis is usefull with the value of variable higher than 0,5. The
results describles in table 2.15 after labling the name of the variable. For
systematic risk, the factor of interest rate risk, without information, not exact
information, the changing of the law can be impacted heavily on the business of
the securities companies. For specific risk of the companies, the quality of human
resources, technical mistakes, moral hazard are factors that impacted strongly on
its business. Accordingly, risk management of the securities companies should pay
more attention on these risk since their heavily effect. However, the other risk as
mentioned in the table 2.15 should be take care during the business of the
companies to make sure the companies will practice and manage risk effectively.
2.2. THE SITUATION OF RISK MANAGEMENT OF THE SECURITIES
COMAPNIES BUSINESS IN VIETNAM
2.2.1. Legal framwork of risk management for securities companies in
Vietnam
2.2.1.1. Regulation on risk management
Risk management of securities companies has firstly regulated in the

Decision 105/QD-UBCK dated 26/2/2013. It guides the establishment and
implementation of risk management for securities companies which ensures and
protects from the losses
2.2.1.2. Regulation on capital
Circular No. 226/2010/TT-BTC dated 31/12/2010 provided the financial
safety ratio and methods of treating poor performance of the securities companies
in term of capital requirements.
Circular No. 210/2012/TT-BTC replaced Circular No.226, dated 15/1/2013
which require more strict of business conditions of the securities companies.
Circular No. 165/2012/TT-BTC dated 9/10/2012 amending and
supplementing some articles of Circular No. 226. It also provides safety measures
for handling the companies which not meet the criteria of financial security.
2.2.1.3. Regulation on CAMEL standard
On 10/2013, State Securities Commission of Vietnam has published the
Circular No 617/QD-UBCK on classification of the securities companies in term
of CAMEL standard. Its objective is to assess overall performance of the securities
companies, based on that supporting for the SSC to manage, controll the
companies’ business.
2.2.2. The situation of risk management of securities companies’ business
According to the result of the survey, there is no companies that
implementing risk management framework fully. It can be explained by the fact
that most of the companies have not yet set up early risk warnning system to
identify and warn the risk exposures, or follow the changes of exposures.
More than 30% of the companies have built and implemented partly of risk
management framework. Many companies have applied risk management policy,
internal controll system and risk quantitative model. In detail, more than 70% of
the companies have published risk management policy in annual reports.
More than 40% of the companies have finished partly risk management
framework but not yet implemented. This results come from the companies
without independent risk management department, depend trongly on internal

controlling department.
Although some companies have not yet practiced risk management but
planned to implement in the near future. From the crisis of 2008, most securities
companies understand the necessary of risk management to manage and minimize
the losses of risk exposures. Moreover, many regulations on risk management have
publishes which means that risk management does not the choice but obligation of
the securities companies doing business in the market.
The level of risk mamagement implementation have positive relationship
with the size of the company but not much correlated with its capital safety. As the
result of the survey, three of the largest companies are not the highest capital safety
ratios. In fact, some smaller companies have implemented risk management better.
Especially, the foreign capital companies have intendedly followed the risk
management framework better since their business culture and policy.
2.3. ASSESSING THE RISK MANAGEMENT IMPLEMENTATION OF
SECURITIES COMPANIES IN VIETNAM
2.3.1. Sucessful aspect
First, the securities companies have step by step implemented risk
management framework systematically and effectivelly.
Second, the independent of risk management department becomes legal
requirement from the law and the companies’ policy.
Third, internal controlling department has performanced better in
investigating, controlling the daily activities of securities companies, based on that
identify ans handle mistakes in time.
Four, the securities are aware of complying capital adequacy ratios. It is not
only meeting the Circular No, 226 but also ensure the financial safety for the
company.
Five, finacial ability of the company have increased significantly that
meeting the requirement of capital ans financial safety from SSC.
Six, risk management become important issue of SSC during the period of
restructuring stock maket.

2.3.2. Constraints
- Risk management culture is not quite accepted in the securities companies.
Some still considered it as expenses rather than potential interest.
- Many comapanies have not yet seperation between risk management
department with others.
- Comapnies have not established reasonable risk management structure.
- There is not strict linkage between back offices to support risk management.
- The objective of risk management focus on handling risk rather than
indentifying and warnning.
- Lack of regulations on risk managment in detail
2.3.3. Causes
2.3.3.1. Objectives
- SSC does not have specific regulations to help securities companies
understand and fully implement comprehensive risk management process.
- Vietnam's stock market is quite new, lack of financial instruments for
diversification, particularly lack of derivatives market.
- The regulations, the legal framework for securities trading activities are
creating the over-cautious business environment
- The trainning program of university or collage have not much concentrated
on risk management
2.3.3.2. Subjectives
Organization and operation model of securities companies are unstable, not
yet identified an optimal model. The number and quality of human resources has
not guaranteed; Quality of information technology is not high; low management
capacity.
CHAPTER 3- SOLUTIONS FOR IMPROVING RISK MANAGEMENT OF
THE SECURITIES COMPANIES BUSINESS IN VIETNAM
3.1. VISION AND DEVELOPMENT PLAN OF THE SECURITIES
COMPANIES IN VIETNAM
3.1.1. Development plan of Vietnam stock exchange

Building and developing the stock market in accordance with the
development of economy – society, establishing the comprehensive and intergrated
stock market with the financial system.
Developing and expanding the stock market which focus on the quality and
safety, gradually moving on the international benchamark and standards.
Developing the stock market in the direction of restructuring, re-building
state industries, encouraging the development of private sectors.
The state will regualate the economy through the law systems, supporting
program, facilitating the stable and sustainable development of the stock market.
3.1.2. Vision and development objectives of và securities companies
- Restructuring the number of securities companies in accordance with the
size of the stock market.
- Restructuring organization of the securities companies in order to improve
the quality, financial ability, corporate governance and risk controlling ability.
- Restructuring shareholders of the securities including commercial banks,
corporations, state-owned companies in accordance with international standards
- Strenthening the quality of performance ability, controlling of the securities
companies.
- Opening the stock market as the international committments.
3.1.3. Objectives ans reuirements of risk management of securities companies
- Ensuring the suitable organizational structure and process to protect the
company from risk exposures and take good opportunities as well.
- Actively indentifying, understanding and managing types of risk of the
companies.
- Quantifying and monitoring types of risk of thes securities companies,
based on that finding suitable solutions to handle the exposures.
3.2.SOLUTIONS FOR IMPROVING RISK MANAGEMENT OF THE
SECURITIES COMPANIES BUSINESS IN VIETNAM
3.2.1. Risk management organizational structure
Before enterprise-wide risk management became the standard, most financial

institutions took a fragmented approach to risk, managing each type of risk in a
separate organization or department with little or no effort at integrating these
areas. Many organizations still follow a traditional model. A chief credit officer,
who reports to the President or the Board, sets credit policy and approves
exposures. Similarly, the market risk management function independently sets
policies and measures and reports on market exposures and limits. Like the chief
credit officer, the market risk executive is independent of the trading floor and
might report to the CFO or the President.
Financial institutions organize their risk management efforts in a variety of
ways. The organization structure of the risk management function in most of the
financial institutions that have designated a Chief Risk Officer can be classified
according to one of the following models:
The financial risk model. The essence of this risk management model is the
integration of financial risks only and the existence of a Chief Risk Officer to
whom the market risk and credit risk functions report.
The all-risk model. The distinguishing characteristic of this model is a Chief
Risk Officer who is responsible for the full gamut of the company’s risks—
including operational risks as well as credit and market risks.
Although there is no one approach that is suitable for all institutions, the
proposed model is an outgrowth of the all-risk model, which is truly enterprise-
wide since it integrates all the company’s risks under a single Chief Risk Officer
who can influence the firm’s risk philosophy and strategy. Rather than cast the
Chief Risk Officer in a “risk police” role, the all-risk approach is consultative. The
proposed model adds to the all-risk model what called a risk portfolio analysis
function. The risk portfolio analysis group provides a staff that can address cross-
risk issues such as integration of market and credit risk, allocation of capital, risk-
adjusted performance measurement, and analysis of new products and/or
acquisitions. The risk portfolio analysis staff gives the Chief Risk Officer the
support he or she needs to be effective in coordinating the three major types of
risk.

Cash capital model
Cash capital model
Maximum cummulative outflow
Maximum cummulative outflow
Contingency Funding Plan
Contingency Funding Plan
3.2.2. Risk management framework
The main issues of risk management framework combine all risk
management standards which guiding controlling and creating risk management
environment. This framework consists of identifying strategic risk, building
alministration structure, classification of reports, self-controlling, managing risk
events, risk management instruments.
Source: KPMG International 2007
Fingure 3.1 Risk management framework in term of Basel II
3.2.3. Capital funding framework
Basically, capital funding framework have been built based on three models
with three liquidity levels: normal, tresss and crisis. It is also considered as one of
the best capital funding framework by Moody’s
Source: Investment bank, Mac Quang Huy (2008)
Figure 3. 2 Capital funding framework of international investment banks
3.2.4. Credit framework
Securities companies should seperate the fuction of credit activities with
credit risk management.
3.2.5. Risk mamagement instruments system
Securities companies can apply list of risk management instruments: Key
risk indicators; exposures reports, mistake reports, risk matrix …
3.2.6. Risk management process
Based on the guidance of risk management legal framework, each securities
company should design suitable risk management process. Basically, it should consist of
some contents as follow:

- Buidling early risk warnning system
- Buidling risk protecting and hegding system
- Building risk handling and managing system
3.2.7. Human resources training
- Building risk management professional culture
- Building and applying standards of moral hazard
- Building suitable salary and bonus system
- Training and self-training
3.2.8. Improving financial ability
In order to implement the above suggestions, securities company need to
build stable financial resources by using internal funding, debt instruments and
equity instruments
3.2.9. Technology ability
Upgrading and investing in technology system through purchasing the best
software in the world…
Spending certain capital for supporting technology system
3.3. RECOMMENDATIONS
3.3.1. Completing the legal framework of the business of securities companies
The first, legal framework of investment bank should be clarified on some
main contents:
- How is organizational structure of investment banks
- The convertibel mechanism of securities companies or other financial
institutions into investment banks
- Regulations on operations of investment bank. At the beginning, it
should be focused on financial advice, M&A advice and underwriting
services
- Operational controlling mechnism of investment bank which impress on
central controlling model
- Regulations on legal capital, staff practice, corporate governance, risk
management.

The second, introduction legal framework of M&A for securities companies.
The third, compleing legal frame work on risk management. Currently, the
SSC has built three instruments of risk management for securities companies: legal
framework for risk management through Circular No. 105; risk management
implementation standards (CAMELS) and early risk warning system. It requires a
specific remedy, apparently to enhance compliance in the securities companies.
3.3.2. Criteria assessing of risk management implementation
In theory, risk management rating have to cover some main contents:
Về mặt nguyên lý, chỉ số mức độ thực hiện QLRR (Risk management
rating) phải bao quát được một số nội dung cơ bản sau: Risk Management culture;
Risk control; Risk model); Strategic risk management.
3.3.3. Capital management
SSC should closely monitor the compliance of the legal capital from the
securities companies. Also, SSC needs to make severe sanctions to punish non-
compliance companies.
3.3.4. Role of Vietnam Securities Deposit and Clearing system
In Vietnam, the clearing is done through Vietnam Securities Depository
(VSD) Therefore, the VSD should have a more positive changes to better perform
the role of a clearing organizations.
3.3.5. The development of drivatives market
The development of drivatives market will supporting for risk management
of securities companies through risk management instruments such as option,
furture contracts.
CONCLUSIONS
In the globliazation and intergration environment, Vietnam stock exchange
has more opportunities to interact with foreign market. Accordingly, securities
companies should have to completed their operations better to follow these
directions.
The research provides overview of risk management for the business of the
securities companies, classifying types of risk that impacted heavily on their

business. From that point, the research restructures the theory of risk management
of the securities companies. Also, the research analyses experiences of risk
management from different securities companies in the world in order to conclude
useful lessons for Vietnam.
Chapter 2 analyses the picture of Vietnam securities companies operations in
generally. The research provides detail analysis of risk management of securities
companies based on achivements, constraints and causes.
Chapter 3 focuses on solutions to improve risk management implementation
of securities companies, including long-term and short-term solution that suitable
to the development of the stock exchange. The solutions also consists of
establishing organization structure; capital framework; risk management
framework; early risk warning systems. In the meantime, the research recommend
some solutions to complete invironment supporting for implementing of risk
management.
Although there have been many attempts in understanding, interpreting the
content of the subject matter, but because the research is quite new, relative
synthesis so that can not avoid mistakes or errors. Therefore, I would like to
receive the comments from scientists to be more complete thesis. Finally, I would
like to express our sincere thanks to the scientists and researchers who dedicated to
help, guidance and feedback to PhD thesis.
LISTS OF PUBLISHED RESEARCHES
1. Tran Thi Xuan Anh (2011), “ M&A activities of securities companies: past and
forward”, Finance Review, 2(556), tr 38 – 41.
2. Tran Thi Xuan Anh (2012), “Risk management – Weakness of the securites
companies business”, Securities Review, 3(161), tr 9-14
3. Nguyen Thi Hoai Le, Tran Thi Xuan Anh (2012), “The future of investment
bank model in Vietnam”, Economic research review 7(410), tr 34- 42.
4. Tran Thi Xuan Anh (2012), “The situation and necessary of securities
companies restructuring in Vietnam”, Banking review, (1+2), tr 110 –
115.

5. To Kim Ngoc, Tran Thi Xuan Anh (2013), “ Risk management of securities
companies via capital management”, Securities review (174), tr 16-21
6. Tran Thi Xuan Anh, Le Quoc Tuan (2014), “Assessing operating of securities
companies in term of CAMEL”, Banking training & research review,
(143), tr 59-64)
7. Tran Thi Xuan Anh (2014), “Fiancial safety of securities companies in
Vietnam”, Banking review, 6(2014)