Derivatives help reduce "shocks" in the stock market

Important foundation has been formed

With 1,000 trading sessions taking place since the establishment of the market, the derivatives market has experienced rapid development, exceeding expectations, clearly demonstrating its role as a hedging tool and contributing to stabilising investment capital flows in the underlying securities market.

According to HNX, after four years of operation, important foundations of the market have been formed. Firstly, the establishment of the derivatives market with a legal system built strictly from the Law on Securities, decree on the derivative securities market, the circular, and the system of regulations and procedures guiding market operators such as HNX and Vietnam Securities Depository (VSD) have been laying important foundations, creating momentum for the consolidation and improvement of the legal basis for market in the long run.

Secondly, system operation (trading, clearing and settlement), information disclosure, effective and smooth supervision have all been highlights. The concept of derivative products and how to deposit, trade and pay derivatives is familiar with investors.

Thirdly, Vietnam's derivatives market is increasingly receiving strong attention from the investment public, researchers, and domestic and international media agencies.

In 2019-2020, many securities firms, investment funds, and banks from Hong Kong, South Korea, Singapore, and Taiwan proposed investment promotion forms for the VN30 Futures product with HNX.

HNX is submitting to the Ministry of Finance for getting permission on carrying out procedures relating to VN30 futures contract. The local authority in the home country will allow brokerage companies to be widely introduced to the VN30 futures contract to the investor community in Taiwan.

On the momentum of global integration, Vietnam's derivatives market is in the trend of stable operation that is the same direction as the world derivatives market, especially under the influence of the complex developments of the Covid-19 pandemic.

In 2020, when the world derivatives market grew by 35% compared to 2019 (reaching 46 billion contracts), the domestic derivatives market achieved a growth rate of nearly 80% (reaching nearly 40 million contracts). In the first seven months of 2021, the growth of the domestic derivatives market topped 16%, while this figure in the world was about 33%.

Finally, according to HNX, with encouraging achievements, Vietnam's derivatives market has been increasingly showing its hedging role, especially when the underlying securities market fluctuates strongly, and is also an investment tool for making effective profits based on the underlying market fluctuations.

“Since the birth of derivatives, the ’stock market shocks’ caused by negative fundamental information have decreased significantly in both quantity and the level of impact, and investors also do not massively withdraw money from the stock market like before," HNX said.

Investors are not really diversified

Besides such results, HNX said the derivatives market still had some limitations that needed attention to be overcome in the future.

The first limitation is the product structure in the market is not really diversified to attract the attention of domestic and foreign investors. The product of the VN30 future contract index has good liquidity but still needs to be developed with other fundamental indicies that are representative and attractive in the market.

Government bond futures products are not really accessible to main investors who are commercial banks. To overcome this limitation, much more open communication is needed between policymakers from the Ministry of Finance, the State Bank, the State Securities Commission as well as market organisers including: HNX, Ho Chi Minh Stock Exchange (HoSE) and VSD.

The second limitation is that investors in the derivatives market are not really diversified, individual domestic investors are still the majority. Although the proportion of trading volume of individual investors has gradually fallen, from 98% at the end of 2017 to 83.81% in 2020, and in the first seven months of 2021 to 81.17%, but overall it is still high. Transactions of domestic institutional investors (including proprietary trading) and foreign investors have increased but still account for a small proportion, averaging about 17.7% and 1.13% of the total market trading volume.

HNX is continuing to coordinate with regulators to research and improve policies and market promotion to boost the diversification of investor structure in the derivatives market.