Increase the rate of margin up to 13% would not impact on derivative market

Illustration image. Source: Internet

According to the State Securities Commission, when opening up the derivatives market, the management authority had considered factors of market risk, and created an attraction for investment capital flow into new products to regulate the 10% margin. However, up to now, cash flow participating in the derivatives market has grown very fast. In the context of the general market it is in the correction cycle, as many factors including internal and external, have caused influences leading to strong fluctuations of the index, forcing the authorities to recalculate the margin in order to ensure the sustainable development of the market.

The VSD also said that the fluctuation of the VN30 index is increasing gradually to the safe margin, so the proposal to adjust the margin ratio to 13% is suitable for the current situation in order to prevent the risk of insolvency of investors.

Furthermore, the proposed margin of 13% is within the range of the published methodology, which is consistent with current market volatility and within the range of 11.2% to 14.5%. This increase is not too high to cause pressure for paying additional margin for investors when officially put into operation, while avoiding a great impact on market sentiment.

With this change, many investors also believe that the 13% rate is appropriate and will not impact much on the market. According to SSI Retail Research, raising the initial margin rate means cutting back on leverage for derivative investors. The actual margin after calculation plus the allowable account thresholds and the price fluctuation range will be higher than the margin rate announced. With a 10% margin, the margin requirement for securities companies is 12.5%, which is equivalent to a leverage ratio of 1:8. With the new deposit ratio of 13%, the actual margin would have to increase by more than 16% to ensure that the securities companies do not violate VSD regulations, which is equivalent to the leverage ratio of 1:6.

"Even though leverage is decreasing, the advantages of T + 0 transaction and sell first buy after in the downward trend still remains important for future contracts. The increase of margin rate would lead to some accounts calling for additional margin. However, investors may choose to add margin to maintain the number of contracts held, or reduce the position of the contract without the need to add funds. Therefore, the decision to raise the deposit ratio may not have much impact on the cash flow in the derivatives market as well as the market," SSI Retail Research said.

Many investors said that changing the margin rate is not rare in the world. This is a tool for market participants to regulate the market by flexibly adjusting the rate in line with market developments and the level of risk. Specifically, they can raise the margin ratio when they see that market risk is on the rise and reduce margin when risk is reduced.