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Dinh Vu

Finance & Banking

Last updated: Monday, July 16, 2018


Vietnam Starts Derivatives Market

Posted: Tuesday, August 15, 2017

The Vietnamese derivatives market officially opened on August 10, 2017. This long-awaited move is expected to add the appeal to the Vietnamese stock market.

Vietnam has become the fifth ASEAN country alongside Singapore, Malaysia, Indonesia and Thailand and the 42nd country in the world to have this high-end financial market.

A derivative is in essence a financial contract made today by the two parties - one buyer and one seller - for a transaction to be settled at a certain time in the future.

At present, 1,300 accounts have registered with the Vietnam Securities Depository (VSD) for derivatives trading, said Mr Duong Ngoc Tuan, Deputy General Director of VSD. However, high risks of derivatives and new rules necessitate careful preparatory steps and an active derivatives market was not expected to be seen right from the start.

At present, seven securities companies are concurrently trading members and clearing members, namely HSC, SSI, VPBS, BSC, VCSC, VNDIRECT and MBS. Regulations on securities companies eligible for trading derivatives are already specific, including the required registered capital of over VND1 trillion. If investors open accounts at non-clearing companies, they will have to go to a securities company concurrently being a trading member and a clearing member to open a margin trading account.

The underlying stock market in Vietnam has over 17 years of construction and development. The advent of the derivatives market is a step towards to perfect its stock and financial markets towards international practices, improve the investor base and attract more foreign investors, thus boosting the market liquidity of the base market.

The main function of the derivatives market is helping investors prevent risks. This will help Vietnam's stock market to attract more potential investment resources. Besides, the derivatives market will help the underlying stock market develop more efficiently since the derivatives market demonstrates investors' expectations about the underlying stock market and makes underlying stocks more marketable.

Market regulators have been very cautious in taking steps to control impacts of derivatives on the underlying market and vice versa. This is illustrated in the first derivatives launched for trading, VN30-Index futures contracts. Then, government bond futures will be rolled out after the market runs for some time.

In order to support the derivatives market, the State Securities Commission will not collect transaction fees in the first three months since this market is operational. This move aims to encourage investors to participate in this new market.

To participate in the derivatives market, investors must open accounts at one of the seven securities companies that have been approved to become derivatives trading members of HNX and clearing members of VSD. Investors can use financial leverages which are much more than the value of margin requirement or use the derivative market as a hedge against market risks. This makes the market attractive and highly risky as well. Vietnamese investors need to understand fully about this market to make right decisions when they join. As announced by VSD, the official initial margin requirement rate is 10 per cent.

Bao Chau

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