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Dinh Vu

Finance & Banking

Last updated: Monday, October 22, 2018


Motivation from Derivatives Market

Posted: Tuesday, October 10, 2017

Vietnam is the fifth country in ASEAN after Singapore, Malaysia, Indonesia and Thailand, to have derivatives markets, and is ranked 42nd in the world with this high-end financial market. The derivatives market has made a strong growth after two months of operation.

It can be said that the birth of the derivatives market is an important step in the process of finalisation of securities and financial market in Vietnam in accordance with international practice, helping to improve the basis of investors simultaneously and attract more foreign investors. This will boost liquidity in the market base.
According to the statistics of the Hanoi Stock Exchange (HNX), as of September 2017, the stock market had 9,679 active accounts, up 34.5 per cent compared to the end of August.

According to the evaluation on the potential of the market, Mr Nguyen Hai Ha, General Director of MB Securities Company said that from the end of the year, the MB Securities Company has about 300 derivatives trading accounts, above 90 per cent of which are personal accounts.

According to Mr Ha, although the market is still very new and holds potential for strong development, there are still risks. To limit the risk level for the customers, since 2016, the MBS has planned to train personnel, organise many training programmes for customers. Especially, since the beginning of this year, it has deployed more than eight training courses for the investors and brokers. However, this is the initial phase of the market, the MBS should be cautious. The development of the market will gradually increase in compatible with the development and transparency of the market and the capacity of investors who are participating in the market.

According to the representatives of HNX, the the derivatives market enjoys strong growth. Total trading volume in September reached 131,903 contracts, valued at VNS10,300 billion, up 126.7 per cent and 136 per cent respectively compared to August.

Accordingly, the average trading volume in September reached 6,595 contracts per session; the average transaction value reached VND514.9 billion per session, increasing 1.9 times compared to that of August.

According to the international practice, the derivatives market always maintains four product codes. However, in September, the VN30F1709 was due on September 21. As a consequence, the HNX has added a substitute product, VN30F1711. Thus, by the end of September, the market still maintained four contract codes traded: VN30F1710, VN30F1711, VN30F1712, and VN30F1803.

With the main function of hedging investors, the investors are equipped with tools to limit their risks, they will be more secure in concentrating resources for this market. This will support the Vietnamese stock market to attract more potential investment. Besides, the value of the stock market is influenced by the base stock market. The birth of the derivatives market will help the base market develop more efficiently. Because the derivatives market reflects the expectation and views of investors towards the stock market, this makes the goods more market-based.

The actual evolution of the market shows that the market liquidity focuses on short-term contracts, in line with the international practice. Trading activities were mainly from domestic investors. During the month, the institutional investors started trading, accounting for 0.15 per cent of total trading volume. The transactions of the foreign investors accounted for 0.05 per cent of total trading volume.

The safety of participating in the derivatives market has increased its attractiveness, which is reflected by the interest of domestic and foreign investors. Investors can use leverage investments with a much larger amount of collateral or use the derivatives market as a hedge against market risks.

Experts point out that, for the derivative stock market, there are three main risks that can occur: new market risk, risk of payment and risk from the underlying factors affecting the derivatives market.

In particular, the risk of payment is strictly controlled by the regulator. Mr Pham Hong Son, Vice President of the State Securities Commission, said: "We require the securities companies to ensure the highest level of payment. If investors fail to pay, securities company must close the position and pay the investors".

In the first phase of the account, the risk of payment is not high but in the future when trading account increases, the risk will be higher. Securities companies must ensure strict payment. Any securities company breaching the payment will be suspended in both base market and derivative market.

The derivatives market is creating trust with investors, with strong growth in more than a month of operation. Many investors believe that the market will continue to develop strongly in the future.

Luong Tuan

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