Vietnam: More derivative products needed: experts

VIETNAM, August 13 - HÀ NỘI — Even though the Vietnamese derivatives market has been operating for five years, it has few products. Therefore, it is necessary to create new products to increase the market’s appeal, said experts. 

With the feature of being able to settle on actual trade date (T+0), allowing short sell and high leverage, products on the derivatives market will attract a large number of

investors, especially when the stock market fluctuates negatively, according to Trịnh Hoài Giang, general director of the Hồ Chí Minh City Securities Corporation. This is because it creates great profit opportunities and helps investors hedge the risk of the common stocks.

While the margin ratio of the derivatives market is still high compared to global markets, the market size and product scale are still limited, meaning big investors are not interested in participating. The majority participating in the derivatives market are still retail investors.

Therefore, in order to attract institutional investors, it requires improvements to the operating mechanism to have more similarities with international practices, and to create favourable conditions for foreign investors to access and attend.

In addition, the market needs to diversify its products. In developed markets, the number of stocks in indices is usually several hundred, for example, the S&P 500, Nikkei 225, and KOSPI 200. Thereby, it is possible to research more derivative products on stock indices such as VNX50 or VNX100, than on large-cap stocks.

While these products are not available, the market should have more bond futures products with different maturities which also help investors have more choices.

Meanwhile, Lê Mạnh Hùng, general director of Vietcombank Securities Company Limited, told tinnhanhchungkhoan.vn that one of the expectations when officially putting the first derivative product into operation - VN30-Index futures contract - was that this product could be used as a tool to restrict market risks for investors, especially during a period of strong volatility. 

To a certain extent, the derivative product had promoted its ability to protect investors' portfolios during periods of strong market trends, especially in sharp declines in a short period of time, like it was in the second quarter of 2022, Hùng said. 

That's because investors can open and close positions in the trading session without having to wait until the next day like in the stock market, and investors can also trade both ways in the derivatives market, while the stock market can only be traded one way. 

In fact, during the recent strong falls in the stock market, some investors transferred money to trade futures products of the VN300-Index instead of selling off stocks, reducing stock supply pressure and also helping to stabilise investor sentiment.

However, on a large scale, the number of products allowed to be traded on the derivatives market at the moment is still limited. Therefore, it is not likely that the derivatives market will bring more risk protection for investors.

Derivatives are made to provide hedging solutions for investors in the stock market and to provide more products for the short-term speculative market. Therefore, it will be difficult to limit speculative activities on the market, and if so, it will also affect the purposes of the product, according to Phùng Trung Kiên, founder of Vietnam Holding Asset Management JSC.

"In the market, not many investors use derivative products as a defence tool but for the purpose of surfing and speculation," Kiên said, adding that retail investors prefer the short-term speculative style, while funds and institutional investors are more interested in hedging.

The derivatives market currently has few products, so its attractiveness is low and it is not active. In the future, it is necessary to have more new products to attract investors.

In the past, investors did not put derivative products on their watch-list, because it often affected the stock market, according to Kiên.

The creators often choose the expiration date to disburse large amounts of money to stocks in the VN30 basket, especially large stocks, thereby affecting the VN30-Index and the derivatives market.

But since June 16, futures contracts on the VN30-Index have been applying a new method of calculating the settlement price to maturity.

The changes can be considered a technical solution to limit the expiration date creators from affecting the index. VNS