Hanoi (VNA) –The State Securities Commission (SSC) has so far licensed 16 securities companies to sell 28.9 million covered warrants with a maximum value of 104 billion VND (4.5 million USD).

On June 28, HOSE puts covered warrants on the market. (Photo: VietnamPlus) 

 

 Offering and developing this kind of security that allows the buyer to buy or sell an underlying asset at a later date if they aim to meet market demand amid widespread global integration.

Firms licensed

Reviewing market performance in the first half, SSC Vice Chairman Pham Hong Son said thanks to economic signals and the Government's drastic policies in monetary market and macro-economic management, the securities market will thrive in the second half of this year.

He also announced the issuance of the first covered warrants in the market, with 16 out of the 17 applying securities firms licensedto trade them.

Son said the approved sellers are securities companies that have strong financial capacity, efficient business processes, solvency and meet financial safety requirements.

Up to 8.62 million covered warrants, or 39.37 percent of the total, were sold in the first stage. In particular, four products sold out.

“Issuers are completing deposit procedures at the Vietnam Securities Depository and listing procedures to offer products to HOSE,” he said.

Attracting many investors?

In principle, apart from the low cost, covered warrants are also traded like stocks, which makes it easier for investors to access and join the market, especially amateur investors.

Nguyen Duc Thong, SSI Securities Corporation’s derivatives transaction director and Morgan Stanley’s former Deputy Director of Investment Strategy Division with eight years of experience working in the UK stock market, said covered warrants are popular in developed stock markets.

The Vietnamese securities market remains fledging and the launch of high-end structured products to the market is a proper and necessary step, contributing to refining products and services in the market but also diversifying investment channels and preventing risks, he said.

The official forecast covered warrants will attract a large number of investors thanks to high leverage and low cost, thus mitigating risks.

As for securities companies, covered warrants will expand their business activities and increase revenue from fees and brokerage services. In addition, the regulation that forces issuers to create a market for their own covered warrants is a standard step to help them gain experience to become future market shapers.

Pressure from fluctuations in the underlying market

According to the SSI survey, few securities companies are eligible to issue covered warrants. The SSI is one of the first securities companies to issue covered warrants with six codes based on the list of four basic stocks (including FPT, MWG, MBB and HPT) with terms from three to six months.

An SSI representative said: “To earn success in covered warrant investment, investors need to fully understand relevant risks such as high leverage, high volatility level, or out the money risk upon maturity”.

However, covered warrant issuers have to face a challenge when underlying securities fluctuate or lose liquidity, making it impossible for them to take hedging actions as regulated.

“Therefore, SSI's risk management and proprietary trading units will issue warnings about liquidity and stock price volatility risks to make timely hedging. In addition, proprietary trading on securities is also taken into account to limit liquidity risk, improve the flexibility of investment activities and use derivatives to hedge adverse fluctuations for underlying stocks,” Thong said.

However, the covered warrant market will contribute to improving the structure of the stock market in general, which is only dealing with basic products such as stocks, bonds and fund certificates.

Before launching new products, Nguyen Thi Viet Ha, member of the Board of Directors of the Ho Chi Minh City Stock Exchange (HOSE), said listing, transaction management and supervision on HOSE are now ready.

"Covered warrants are one of the products prepared by HOSE for many years. With effective support from bourses in Asia and securities companies abroad, the HOSE has pooled resources to bring good and quality products to the market. The HOSE expects that covered warrants will work stably and effectively to welcome investors,” she said.-VNA