Sunday, 17 Dec 2017

Vietnam’s first derivatives market: Bring on the big game

Updated at Saturday, 12 Aug 2017, 11:27
The Hanoitimes - Vietnam`s first derivatives market has just been launched on Thursday (Aug 10) with the initial aim to offer futures contracts on the stock markets and in government bonds.
Once the market is fully operational and stable, more instruments will be introduced, said the State Securities Commission. The emergence of the derivatives market will strengthen the country's stock market by providing more instruments to hedge and manage risks in a bid to attract more investors.
There are 7 securities companies accepted to become derivatives transaction members of Hanoi Stock Exchange (HNX) and payment offset members of Vietnam Securities Depository (VSD): VPBank Securities (VPBS),.HCMC Securities (HSC), Sài Gòn Securities (SSI), BIDV Securities (BSC), VNDirect Securities (VNDS), Bản Việt  Securities Company(VCSC), MB Securities (MBS). To attend the derivatives trading, investor can open account at these 7 companies.  
Positive step
“This is a positive sign for Vietnam’s financial market and shows that the country’s financial infrastructure and investors' expertise have met the requirements for a fast-growing derivatives market," said Tran Viet Hung, a financial derivatives consultant at Saigon Securities Inc.
The launch of the derivatives market is designed to support the country's stock market by providing more instruments to hedge risks and attracting more investors. “The main function of derivatives market is hedge the risk for investors. Therefore, the launch of this new market would encourage investors to pour more capital to Vietnam market. Hence, Vietnam stock market would attract more potential investing force”, Nguyen Anh Phong, Vice General Director of HNX said.
Discussing with Reuters, Le Ha, an analyst at Vietcombank Securities, said making more products available was a positive step. Gains would be gradual, but overall it could help Vietnam's efforts to become a viable emerging market, she said. "This may also partially help shorten the process of upgrading Vietnam's stock market," she added.
The plan was approved in 2014 by then Prime Minister Nguyen Tan Dung and has been welcomed by experts and investors following feasibility studies. In Southeast Asia, Singapore and Thailand also have derivatives markets. Vietnam's stocks are on the radar for frontier market investors, offering the region's second-cheapest stocks, according to the U.S paper.
The big game is on
After 17 years of development, Vietnam stock market reach stable level and demand the next phase of market structure. Derivatives market plays an essential piece in that big picture.  In advance of launching day, Duong Ngoc Tuan, Vice Director of VSD said, the derivatives accounts expected to open on the first transaction day can reach 2000-2500, even 3000.
While Nguyen Hai Ha, General Director of Military Bank Securities Company (MBS) said, until the end of 2017, there would be 300 derivatives transaction account, 90% of which belong to individual.
However, as a big game, there are both benefits and risks for the player in this new playground.
Both domestic and foreign investors are eager for Derivatives market because of its attraction. The investor can use leverage of vast volume or use derivatives as tool to hedge out-of-expectation market risk. Hence, advice for them is to understand clearly about the market to make decision. According to VSD announcement, official initial margin rate is 10%.
According to Pham Hong Son – Vice Director of State Security Commission of Vietnam, there are 3 main risks in derivatives market:  new market risk; payment risk and risk that basement market affect derivatives market.
Among those, payment risk are seriously controlled and solved.  “We don’t demand securities company to ensure payment at top level. If investor can’t pay, the securities company must close the order and pay for investor. At first, payment risk is limited, but when the more number of transaction account increase, the bigger risk come”,  Son said.
Cam Anh
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