The finance ministry has asked the State Securities Commission (SSC), Ha Noi Stock Exchange and Vietnam Securities Depository to prepare for the derivatives market launch by the end of 2016.
A derivative is a financial instrument that derives its value/price from underlying assets such as stocks, bonds, currencies and interest rates, as well as commodities and market indices. The most common types of this product are futures, options, forwards and swaps.
The ministry requested SSC to complete the draft circular to provide guidelines for the implementation of Decree 42/2015/ND-CP, which sets the rules for the organisation and operation of the derivatives market, as well as builds regulations and a cohesive operation process for this business.
The Ha Noi Stock Exchange said the market would open with two initial products, expected to be future contracts based on stock indices, and government bonds.
The northern exchange has been asked to organise and operate the derivatives market, while the Vietnam Securities Depository will perform clearing and settlement procedures for transactions. The two bodies will work together to develop a proper technological system to ensure the market operation in the first stage of five years.
SSC Vice-Chairman Nguyen Thanh Long said the essential legal framework for the launch of the market has basically been completed. The task to be done is to issue guidelines to implement the decree.
"We can say that the legal framework for the derivatives market is waiting only for the guiding circular that is expected to come out soon to collect the opinion of market participants. It will be issued after its completion and will be submitted to the finance ministry," Long said at a conference on the derivatives market on July 31.
He said the draft circular covered specific regulations for organisations to provide derivatives services such as securities brokerages, fund management companies and commercial banks, and other provisions related to products.
Risk management
Besides diversifying products on the stock market, derivative securities are very important tools that help investors to prevent risks. However, as this is a complicated market which requires careful preparation, the market should also be developed step-by-step to ensure system safety.
In the early stage, the derivatives market in Viet Nam had only two products, which were future contracts based on stock indices and government bonds. But in the long-term plan, Long said it would cover more, such as options or derivatives based on non-stock assets.
Choi In Jun, director of Shinhan Investment Corp's business strategy, who also participated in the conference on the derivatives market held by the SSC on July 31, said there were no perfect tools to prevent risks as these tools themselves carried risks due to a high ratio of leverage.
Choi said Viet Nam should set tight rules to diminish the negative impact of derivative products, while constructing flexible regulations on the initial margin ratio, which could be adjusted in accordance with the market prices.
As derivatives were a new concept, Long said more attention should be paid to the task of updating the knowledge of management bodies, financial companies and investors about the definition, function, advantages and risks of derivative products.