Knowledge

1. What is derivatives? Derivatives are financial instruments whose values are based on an agreed-upon underlying assets. Common derivatives include: Forwards:

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Knowledge

Derivatives are financial instruments whose values are based on an agreed-upon underlying assets. Common derivatives include:

  • Forwards: an agreement between two parties to buy an underlying asset at a pre-determined price and on a pre-specified future date.
  • Futures: a standardized forwards contract written by a clearing house that operates an exchange where the contract can be bought or sold.
  • Swaps: a contract to exchange cashflows on or before a prespecified future date based on the underlying value of currencies exchange rates, bonds/interest rates, commodities exchange, stocks or other assets.
  • Options: a contract that gives the owner the right, but not the obligation to buy (a call option) or to sell (a put option) an underlying asset at a pre-determined price (the strike price) and on a pre-specified future date.

In the experience of countries that have developed derivatives market, futures and options are the most popular products. However, options is a more complex and advanced product, which may be difficult for majority of investors in the early stage of the market. Meanwhile, futures trading has many similarities with stock trading, in line with the criteria of product design simplicity and its ease of use. Therefore, futures is chosen as the first derivatives product to be launched in Vietnam.

To step-by-step help investors familarize with new instruments, in the first phase of the market, two futures products which are index futures (on VN30 and HNX30) and bond futures will be introduced. Other derivatives products will be launched when market conditions are appropriate.

No.

Specification

Index futures on VN30

Index futures on HNX30

Government bond futures

1

Contract name

Index futures on VN30

Index futures on HNX30

Government bond futures

2

Contract code

VN30Fyymm

HN30Fyymm

VB05Fyymm

3

Underlying asset

VN30 index

HNX30 index

5-year government bond with par value 100,000 VND, coupon rate 5%/year, annual payment. Principal is paid at the maturity.

4

Multiplier

100,000 VND

100,000 VND

10,000 VND

5

Contract size

100,000 VND * (VN30-Index futures price)

100,000 VND * (HNX30-Index futures price)

1,000,000,000 VND

6

Contract month

Spot month

Next calendar month

Next two quarterly months

Spot month

Next calendar month

Next two quarterly months

Next three quarterly months

7

Trading method

Order-matching
Put-through

Order-matching
Put-through

Order-matching
Put-through

8

Trading time

ATO: 08:45 – 09:00

Continuous order-matching (morning): 09:00 – 11:30

Continuous order-matching (afternoon): 13:00 – 14:30

ATC: 14:30 – 14:45

Put-through: 08:45 – 14:45

ATO: 08:45 – 09:00

Continuous order-matching (morning): 09:00 – 11:30

Continuous order-matching (afternoon): 13:00 – 14:30

ATC: 14:30 – 14:45

Put-through: 08:45 – 14:45

Operning time: 15 minutes earlier than bond market
Closing time: same as the bond market

9

Price limits

+/-7%

+/-10%

+/-3% of reference price

10

Price tick

0.1 index point (equivalent to 10,000 VND)

0.05 index point (equivalent to 5,000 VND)

1.0 (equivalent to 10,000 VND)

11

Unit

01 contract

01 contract

01 contract

12

Final trading day

The third Thursday in the contract month. If that day is a holiday, final trading day will be adjusted to the previous trading day

The third Thursday in the contract month. If that day is a holiday, final trading day will be adjusted to the previous trading day

The date 15th in the contract month. If that day is a holiday, final trading day will be adjusted to the previous trading day

13

Final settlement day

The next business day after the final trading day

The next business day after the final trading day

The next three business days after the final trading day

14

Payment method

Cash settlement

Cash settlement

Physical delivery

15

Method to determine
Daily settlement price

According to VSD regulations

According to VSD regulations

According to VSD regulations

16

Method to determine Final settlement price

VN30-Index price on the final trading day

HNX30-Index price on the final trading day

Daily settlement price on the final trading day

17

Reference price

Daily settlement price on the previous trading day or theoretical price (on the first trading day)

Daily settlement price on the previous trading day or theoretical price (on the first trading day)

Daily settlement price on the previous trading day or theoretical price (on the first trading day)

18

Position limits

The maximum number of contracts in one trading account:

- Professional investors: 20,000
- Institutional investors: 10,000
- Retail investors: 5,000

The maximum number of contracts in one trading account:
- Professional investors: 20,000
- Institutional investors: 10,000
- Retail investors: 5,000

According to VSD regulations

19

Initial margin rate

According to VSD regulations

According to VSD regulations

According to VSD regulations

20

Issuing date

When launching futures contracts

When launching futures contracts

When launching futures contracts

21

Order limits

1,000 contracts/order

1,000 contracts/order

1,000 contracts/order

22

Criteria for delivered
bonds

 

 

Government bonds with maturity time to final settlement day of 3.5 – 6.5 years. The minimum issuing amount is 2,000 billion VND. Conversion
factor is calculated based on coupon rate of 5%/year.

Derivatives provide for investors more instruments to hedge risk, speculate and arbitrage

  • Investors can experience some features which have not been allowed in the stock market such as short selling, intraday trading and daily settlement
  • In terms of capital usage, high leverage effect in derivatives market means that investors are able to trade a large notional amount with relatively small amount of capital
  • Last but not least, exchange-traded derivatives products will help investors mitigate counterparty risks since clearing process is conducted via CCP (Central Clearing Party) which is a buyer of all sellers and a seller of all buyers

Short selling is the sale of a security that is not owned by the seller, or that the seller has borrowed. Short selling is motivated by the belief that a security's price will decline, enabling it to be bought back at a lower price to make a profit.

In Vietnam stock market, investors can sell only if they own the stocks. However, in futures market, if the investors have expection of falling price in the future, the investors can short sell futures contracts without having to own underlying assets.

Intraday trading means investors can open and close positions within a day.

For example: Investor A buys futures contracts at 10 a.m on 17th February 2017. At 2 p.m on 17th February 2017, investor A wants to realize any losses/profits, thus investor A places a short order to close the existing position.

 

Stock market

Derivative market

Definition

Margin trading in the stock market is a lending transaction of securities service companies to customers to buy stocks.

These stocks and other stocks are used as pledged assets.

Margin in the derivative market is a collateral to ensure payment ability of two counterparties

Apply to

Buyers

Buyers and sellers

Interest rate

Bear interest rate decided by securities service firms.

N.A

Compulsory
(Y/N)

Not compulsory

Compulsory
Both parties must deposit initial margin amount to ensure payment.

VSD manages collateral assets based on two criteria: (i) the ratio of Cash to stocks and (ii) Account ratio.

Collateral assets can be cash and/or securities which must be in the short list of SSC. Securities’ values will be discounted based on their liquidity. The proportion of cash collateral in total asset collateral must not be lower than 80%.

For example:

An investor deposits collaterals including 240 million VND of cash and 100 million VND of securities (after haircut).

Since the proportion of cash collateral in total asset collateral cannot be lower than 80%, the value of eligible collateral is equal to 240 million VND + min(100 million VND; 25%* 240 million VND) (300 million VND in which 240 milion VND cash và 60 million VND securities).

Furthermore, VSD sets three levels of warning for Account ratio. The higher the Account ratio, the lower the remaining collateral amount used for derivatives trading:

Safe level

Warning level 1

Warning level 2

80%

90%

100%

Account ratio ≤ 80%: trading account’s status is Safe

80% < Account ratio ≤ 90%: trading account’s status is Warning level 1. Text messages will be sent out to warn customers

90% < Account ratio ≤ 100%: trading account’s status is Warning level 2. Emails and text messages will be sent out to warn customers

Account ratio > 100%: trading accounts are blocked (customers cannot place orders except for closing positions)

Open account Equity market Derivatives market Price board
SSI