|A trader follows transactions on screen as Vietnamese shares yesterday extended losses for the fourth day in a row. — VNS Photo Doan Tung
HA NOI (VNS) — The role of financial institutions in Viet Nam was essential for the derivatives market, said Can Van Luc, vice-president of the Bank for Investment and Development of Viet Nam (BIDV) said at a workshop yesterday.
In May this year, the Prime Minister issued Decree 42 on derivatives and the derivatives market. It includes definition of futures, purchase/sell options and forward contracts, and regulates the operation of the derivatives market, including the role of brokerage firms, clearing and settlement process.
The workshop was organised by the State Securities Commission (SSC) and BIDV to introduce the draft circular for organisation and operation of Viet Nam's derivatives market, following decree 42, which took effect in July.
Luc said that as both intermediaries and members of the derivatives market, financial institutions had to connect the demands of purchasers with supplies from sellers to increase market liquidity.
In return, financial institutions also received benefits from the derivatives market. For example, they could meet clients' demands with more customised products to raise income from services and improve their competitiveness.
He said this would help them match international standards and become modern advanced-product-oriented financial institutions, he said.
To run the derivative market properly, Viet Nam needed to stabilise its macro-economic development, including the finance-currency market, Luc said.
He said Viet Nam should also complete its legal framework for the securities and derivatives markets to ensure information transparency. It should also create efficient sanctions against any violations.
Lucsaid the Government also needed to develop a modern and stable technology background so that members and investors on the derivatives market could control risks and fasten trading processes.
In addition, membership companies and government agencies that participated in the market should develop mechanisms to closely control trading activities, manage market risks and improve the quality of investors, he said.
Luc said that derivatives could benefit the economy in different ways, especially when they provided an effective risk-management instrument and were able to raise the capital with low and diversified costs.
He said derivatives also created payment facilities to support market trading with information about market prices.
However, he said wrong use of derivatives could create risks as derivatives were only a channel to screen and reduce risks for investors and the market.
He said that derivatives could become a speculative instrument for market manipulation without a complete legal framework. Derivatives also decreased potential profits for inexperienced investors.
Or worse, intense fluctuations in the price of underlying assets – equity indices and government bonds – could make financial institutions fail to perform their obligations to buyers and influence the whole system of commercial banks and the macro-economy later, he added.
In order to get investors and brokers used to new products and services, the Ha Noi Stock Exchange will launch future contracts to open the derivatives market in late 2016, underlying equity indices and government bonds, said Nguyen Thi Thu Ha, R&D manager of the Ha Noi Stock Exchange.
The stock-index-based future contracts would cover all shares in the VN30 and HNX30 Index - which track the performance of 30 largest shares on HCM and Ha Noi Stock Exchange - she said.
The government-bond-based future contracts will cover five-year government bonds with an annual coupon rate of 7 per cent per year, she added.
Other details for initial derivative products will be covered in a circular, which is being drafted to provide instructions for companies and investors with futures contracts, Ha said.
Up to now, there are 892 stocks on three exchanges of the securities market with total capitalisation being equal to 30 per cent of Viet Nam's Gross Domestic Product (GDP) and daily trading value of more than VND2 trillion. The bond market has also developed in the last three years with total capitalisation equal to 14 per cent of the country's GDP and daily trading value of VND2 trillion made by 25 bidders and 54 traders, including top financial institutions in the nation. — VNS