Derivatives Market: Favourable Opportunity for Stock Market

In order to meet the development requirements of the stock market of Vietnam in the modern age, the come-into-being of the derivatives market is considered an inevitable development. It will serve as a direct link between those who are in need of capital and those who have the resource. As the stock and bond markets are expanding in both scale and form, derivatives market has been attracting a large number of participants in Vietnam including issuers, brokers, both domestic and foreign investors. Organisational system also is getting more and more professional and is being perfected towards international standards.

 

Derivatives market is the market for derivative financial instruments, which are contractual instruments, their success is determined based on one or several other assets. The derivative instruments, for example contracts, are formed on the basis of agreements between buyers and sellers. Price is stated clearly on the contracts and buyers will try to push it down as much as they can while sellers will do their best to counter it. Thus, the derivatives market is the market where financial documents are offered and traded, such as the right to buy shares, warrants, options contract.

 

According to Mr Nguyen Thanh Long, Deputy Chairman of the State Security Commission, derivative securities would be listed on the Stock Exchange and the purchase orders were similar to regular stock, thus the preparation for IT systems serving the deployment of derivatives market didn’t pose much trouble. The current trading system of the stock exchange was completely able to serve the listing as well as stock transactions of derivative security, adding some new features then it would be ready to meet all operational requirements. In addition to the legal framework construction, the SSC was also actively promoting the study of international experiences as well as the propagation and dissemination of information about relevant regulations and the planned implementation models to investors so that individuals and organizations can have an understanding about the market and get to it quickly and efficiently.

 

Mr Long affirmed that the preparation for facilities and technical systems for the establishment, management and operation of derivatives market in Vietnam in 2016 was being implemented on schedule and complying with requirements.

 

Mr Ati Atikul, Derivative Security Director of Maybank Kim Eng Securities Pte Ltd. (Thailand), said that in Thailand, before doing trade, stock in derivatives market, companies must go through training. After that, those companies would pass on the training to investors. Along with that, seminars were also held regularly to introduce products prior to deployment. During the first phase, the trading volume of derivatives mainly had come from individuals, about 80 percent. After about 2- 3 years, as more and more investors and organisations were getting in, the trading volume of individual investors was pushed down, accounting for about 55- 60 percent, while domestic organisations occupied about 20 - 30 percent, the rest was foreign investors’ with 15 - 20 percent.

 

Assessing the potential of the derivatives market in Vietnam, Mr Ati Atikul believed that organisations were more likely to be attracted and get involved than small individual investors, which would be very good for the development of the market because the trading volume of organisations would be huge, which in turn would attract individual investors.

 

As reported by the SSC, as of September 2015, total capitalisation value of the stock market of Vietnam was approximately US$51 billion, equivalent 30 percent of GDP. However, this percentage remains among the lowest of the region, behind Indonesia (41 percent) and the Philippines (95 percent). Experts expect the introduction of derivatives market in Vietnam will help attract more investors and foreign capital inflows. It will also act as a launcher to push Vietnam's stock market’s position on the MSCI Index (MSCI Inc., US) from marginal market to emerging markets.