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Derivatives market to come in May or June

Released at: 15:26, 10/03/2017

Derivatives market to come in May or June

Photo: Viet Tuan

Legal framework now completed, SSC Chairman tells conference.

by Duy Anh

Vietnam’s derivatives market will begin operations in May or June in a bid to offer futures contracts on the stock market and in government bonds, Chairman of the State Securities Commission (SSC) Mr. Vu Bang told a conference in Hanoi on March 9.

“The emergence of a derivatives market will strengthen the country’s stock market by providing more instruments to hedge and manage risks to attract more investors,” Mr. Bang said.

“The legal framework has been completed,” he added, with the finance ministry loosening regulations on investors’ margin deposit accounts and an amended circular on the matter possibly being issued this month.

The Hanoi Stock Exchange (HNX) and Vietnam Securities Depository (VSD) have completed developing regulations on listing, trading, settlement and membership, with related regulations also coming into effect before April.

According to Mr. Bang, the trading and settlement systems have been tested and are now stable and ready for market operations. “There are now 16 brokerage companies who are ready for the derivatives market but only half are licensed to participate,” he said.

Covered warrants are another product expected to become available in September, allowing holders to buy or sell a specific amount of equities, currency or other financial instruments, usually from or to a bank or a similar financial institution, at a specific price and time.

The legal framework for the product has also been developed, and HNX and VSD are developing instructions and criteria to monitor the trading system and the establishment of the covered warrant market. “This is a positive sign for Vietnam’s financial market and shows that the country’s financial infrastructure and investors’ expertise have met requirements for a fast-growing derivatives market,” said Mr. Tran Viet Hung, a financial derivatives consultant at Saigon Securities Inc. (SSI). “Such a market should bolster, not deter, the country’s stock market in a short space of time.”

The plan for opening a derivatives market was approved by former Prime Minister Nguyen Tan Dung in 2014. In Southeast Asia, only Singapore and Thailand have already opened derivatives markets. “There is a high possibility that the two local bourses, the HNX and the Ho Chi Minh City Stock Exchange (HoSE), will be merged and a parent company founded to manage the two,” Mr. Bang said. “The merger would raise the status of Vietnam’s securities market from the frontier level to the emerging level.”

Regarding English-language information disclosure, Mr. Bang noted that the SSC will apply the requirement to large-cap firms first because it is difficult to apply it to all listed companies, especially small firms.

Together with the merger of the two local bourses, the opening up of Vietnamese banks to more foreign investment is also expected to speed the country’s ascent to emerging-market status and boost a stock index that has already surpassed a ten-year high. In January, Prime Minister Nguyen Xuan Phuc said offshore ownership caps would be raised from the current 30 per cent as early as this year, with the government to exit completely from some troubled banks. Still, the new limit has yet to be made public.

The benchmark VN-Index rose 15 per cent last year compared with a 1.3 per cent decline in the MSCI Frontier Markets Index. According to Mr. Kevin Snowball, CEO of PXP Vietnam Asset Management in Ho Chi Minh City, the size and openness of the market are more important than liquidity in getting an upgrade from MSCI.

At the end of trade on March 9, the VN-Index slipped 0.11 per cent to close at 715.8 points on HoSE. The HNX-Index, meanwhile, extended a rally to three consecutive days, up 0.21 per cent to end at 87.72 points, lifting the three-day growth to 1.3 per cent. On the currency front, the Vietnam dong had depreciated 2.2 per cent since last November as at March 7.

Stock market capitalization stands at VND2,260 trillion ($101 billion), equal to 50.3 per cent of Vietnam’s GDP, a rise of 16 per cent since the end of 2016 and the highest level since the market began operations. Market liquidity has improved, with an average transaction value of VND7.4 trillion ($324 million) each session, up 49 per cent against the same period last year and 6.6 per cent higher than the average in 2016.

During the first two months of 2017, capital mobilization was VND40.7 trillion ($1.8 billion), a year-on-year fall of 27 per cent, while capital mobilization in February increased 79 per cent against January. In the first month of 2017, the total value of foreign investors’ portfolios stood at a record $18.4 billion, according to figures from the SSC.

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