Thursday, August 17, 2017 - 16:57:46

SSC builds legal framework to run derivatives market

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A Vietnamese derivatives market is expected to be put into operation in 2016. The State Securities Commission (SSC) is stepping up the construction of a legal framework to run this market safely and effectively, the Vietnam Economic News reported.

Head of the SSC's Market Development Department Nguyen Son said that a derivatives market is a high-grade, complicated and potentially risky market as it accommodates transactions of financial documents such as the right to buy shares, warrants and call options. A Vietnamese derivatives market will be developed cautiously from a low to a higher level to assure that it is managed. A legal framework for this market is being prepared for the market’s short and long-term development.

The SSC recently called for suggestions for a draft government decree on derivatives and derivatives market prior to its submission to the government. According to the draft decree, derivatives must be standardized, listed and transacted on and through stock exchanges and paid through a central counterparty (CCP) system to avoid risks. The draft decree allows securities firms and commercial banks meeting certain standards especially capital and financial security standards to function as members of the derivatives market.

The Vietnamese derivatives market will target large, strong financial institutions that are capable enough of guaranteeing customer's transactions. The SSC is preparing a legal framework for the future derivatives market in accordance with international rules and foreign experiences. Building an effective legal framework for the market is not simple at all as derivatives market development is new in Vietnam . Deposits, payments, payment security mechanisms and CCP are being considered carefully when drafting the legal framework.

The draft decree requires securities companies to provide investors with information about derivatives, modes of derivatives transactions and payments and deposits before signing an account opening contract with investors. According to the draft decree, securities companies must provide investors with documented warnings about potential risks on the derivatives market while regularly informing investors of transaction results and deposit balance.-VNA

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