Derivatives market grows spectacularly after three years of operation

Hanoi Stock Exchange: Ready for steps of consolidation

On August 10, 2017 the derivatives market was officially launched.

Grow strongly

On August 10, 2017, the derivatives market was officially launched. According to the HNX, the development of the derivatives market is an indispensable trend not only for the Vietnamese stock market but also in the general trend of the world.

After three years of operation, the derivatives market has developed rapidly, exceeding the target and showing its role as a risk prevention tool, positively contributing to stability of the underlying market.

Currently, the derivative market has two derivative products on underlying assets, including the VN30 stock index and five-year government bonds, of which the government bond futures contract is only traded by institutional investors.

According to the HNX, although the derivatives market is newly established, it has strong growth, relatively good growth rate, with growth next year higher than the previous year.

In the past three years, by the end of July 2020, a total of more than 67.9 million futures contracts had been traded. Operation in the derivative market is particularly active when the underlying market has strong volatility.

The liquidity in the market continuously surpassed previous levels. If in 2019, the average trading volume on the derivative market reached 88,740 contracts per session, a year-on-year increase of 12.6%, in the first seven months of 2020, the average trading volume increased nearly 95% compared to 2019, reaching 173,000contracts each session. The record trading volume in 2019 of 191,707 contracts has been continuously broken and the latest record is hit at 356,033 contracts at the trading session on July 29.

HNX said the spectacular growth in transaction turnover of the Vietnam derivative market was a figure developed markets previously took many years to achieve.

The Taiwan Futures Exchange (TAIFEX) took 13 years, and the Thailand Futures Exchange PCL (TFEX) took more than seven years to achieve the same number of trading contracts as hit by the Hanoi Stock Exchange.

Impressive figures regardless of Covid-19

According to the HNX, along with the rapid increase in the number of trading contracts, the open interest (OI) number also increased by 4.7 times from 8,077 at the end of 2017 to 38,001 contracts on July 31, 2020.

In periods the domestic and international stock markets suffered strong drops, especially, the general economy was heavily affected by the Covid-19 pandemic in the first quarter of 2020, or when crude oil prices in the world fell to a record of less than USD 0 in April 2020, the OI of the entire derivative market sharply increased compared to previous period.

Statistics show from March to May, 2020, when the stock market had many fluctuations, the derivative stock market still had significant growth, trading volume of futures contract on the VN30 increased by nearly 30% and the OI increased by 12% compared to the previous month. In April, the volume of derivative transactions increased by 19% and OI by 70% compared to March.

Recently, after the sharp decline in the underlying market due to the impact of the second Covid-19 pandemic in the end of July and early August 2020, on August 5, the volume of OI in the derivative market hit 38,817 contracts which is the highest level.

From the liquidity data, it shows Vietnam's derivative market has contributed to stabilising the psychology of investors, especially when the underlying market is volatile, and is a tool to prevent risks for underlying securities and is an effective solution to keep capital flow in the market when the underlying market falls sharply.

For the Government bond futures contract, institutional investors have one more option to invest and prevent risks in the bond market. With the special feature of being a product for institutional investors, the transactions of this product are not really exciting. After a year of launching, 296 government bond futures contracts had been traded.

The number of derivative trading accounts continues to increase monthly. By the end of July 2020, 132,274 derivative trading accounts were opened, up 1.5 times compared to the end of 2019.

So far, the derivative market's clearing and trading membership system has had 19 securities companies, an increase of five members compared to 2019. The increase in members is also seen as a positive factor to help increase competitiveness, promote the improvement of the quality of services provided in this market.

In the near future, the HNX will expand the scale of the derivative market to attract more domestic and foreign institutional investors.

In the short term, HNX will research and develop and diversify products to meet needs of investors and in accordance with the guidelines of the Government. In addition to index-based derivative products, the HNX also plans to research and develop futures contract products based on single stock future (SSF) and single stock option (SSO).

At the same time, the Hanoi Stock Exchange will work with agencies to develop a legal framework for new products to prepare for the launch of new products after 2020.

In addition, the HNX makes great efforts to find solutions to promote diversification of the investor base, especially the development of the institutional investor system on the derivative market. In parallel, HNX continues to work with management agencies to strengthen supervision on the derivative market as well as inter-market surveillance, ensuring smooth, efficient, and safe operation of the market for investors.