Positive results in Vietnamese derivatives market

Thursday, 2019-08-15 16:57:59
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Vietnamese derivatives market has showed positive signs after two years of operation. (Representative photo)
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NDO – Two years since its inception (August 10, 2017-2019), the Vietnamese derivatives market has proved its role as a risk prevention tool, contributing positively to the retention of the capital flow on the primary market, while attracting both domestic and foreign investors.

Over the past two years there have been more than 36 million contracts reached on the market. In the first seven months of 2019, the volume of futures contracts of shares indexes with the VN30-Index reached an average of nearly 100,000 contracts per session, an increase of 1.27 times compared to 2018 and nearly 10 times higher than 2017.

Compared to the transaction of a similar product – the SET50 Index futures contracts on the Thai derivatives market (which is a developed market in the region that’s been going for 13 years) – the Vietnamese transaction volume is equivalent to about 70% of that in on the SET50 Index.

Positive contribution to retaining capital

The derivatives market has proved its role as an effective risk protection tool, which has a stable effect on investor psychology, especially when the primary market fluctuates strongly. It is also a risk prevention tool for the portfolio of the primary market and is an effective solution to retain investors, especially when the primary market showing signs of declines.

The volume of open interests (OI) increased 2.7 times from 8,077 contracts at the end of 2017 to 20,494 contracts on July 31, 2019. During the sharp decline periods in the primary market as in May-June 2018 and last May-June, transactions on derivatives market increased sharply compared to the previous months, in particular there was a sudden increase in the OI volume compared to the previous months. For example, the trading session on May 23, 2019 saw OI volume reach a record high since the launch of the market, reaching 39,854 contracts (1.85 times higher compared to the end of 2018 and nearly five times at the end of 2017).

According to the product development roadmap from low to high ones, on July 4, 2019, the Hanoi Stock Exchange (HNX) officially launched the Government bond futures contract to provide investors an additional investment option and effective risk prevention tool in the market, especially for institutional investors.

So far, the domestic derivatives market has seven product codes of futures contracts in line with international practice, including four codes of VN30 Index futures contracts and three futures contracts on five-year Government bond.

Attracting domestic and international investment flows

The strong growth of the derivatives market, especially the VN30 Index futures contract, has attracted much attention from foreign organisations. Particularly, investment funds simulating VN30 Index have attracted huge foreign capital flows.

Recently, it is notable that the Stock Exchange of Singapore has expressed its desire to cooperate in developing derivative products on Vietnamese stocks, listed on the Singapore exchange to serve investment and risk protection needs of foreign investors.

The number of derivative trading accounts continues to increase every month. By the end of July 2019, there were 78,445 derivative trading accounts opened, almost doubling the figure during the same period last year. The trading and clearing houses system of derivatives market has so far had 14 securities companies.

Transactions of domestic individual investors still account for a large proportion despite showing signs of gradual decrease, accounting for 91.15% of the total trading volume, compared to 99.1% at the end of 2018.

Transaction of domestic institutional investors (including securities dealing) still accounts for a small portion of domestic investors' transactions, reaching 1.54%.

Transactions of foreign investors have increased but still account for a small proportion of 0.58% of the total trading volume of the entire market.

For five-year Government bond futures contracts, all transactions are carried out by institutional investors who are banks. The transactions of securities dealing by securities companies only accounts for 10% of the trading volume.

New products to be launched

In 2019, the HNX continues to study to develop the VNX200 Index futures contracts and is expected to build on new derivatives products, including index options, single stocks futures (SSF), and single stocks options (SSO).

At the same time, the HNX coordinates with relevant agencies to develop a legal framework for new products to prepare for the launch of new products, which can be applied in the post-2020 period to diversify products on the market, meet the needs of investors and follow the Government regulations.

In addition to developing new derivatives products, the HNX will also strengthen coordination with market regulators and other relevant market operators to continuously improve surveillance activities and maintain an effective, smooth trading system, as well as sustaining linkages with market components and investors to promptly meet the arising needs in the market.