Nguyen Anh Phong, Deputy General Director of the Hanoi Stock Exchange (HNX) (Photo: VietnamPlus)

Hanoi (VNA) – The launch of Government bond futures contracts will give the derivatives market a larger selection of investments and the contracts promise to become an effective tool to prevent interest rate risks. 

On July 4, the Hanoi Stock Exchange (HNX) will introduce a new derivatives market product in Vietnam -  Government bond futures contracts.

According to Nguyen Anh Phong, Deputy General Director of the Hanoi Stock Exchange, this new product will help the market have a broader selection of investments and the contracts will be effective tools for investors to prevent interest rate risks.

Product of institutional investors

According to the Ministry of Finance, in the early stage, this product will only be traded by institutional investors.

Phong explained that Government bond futures contracts are traded like other derivatives securities products; however, the payment is quite complicated, which requires professionalism and an insight into Government bonds.

The Government bond futures contracts carry a lot of risk prevention factors for bond investors in the market, thus not attracting individual investors, he said.

Nevertheless, after getting used to these contracts, investors are expected to increase their interest in the product, Phong added.

Underlying asset: Government bonds with five-year maturity

Specifically, the underlying asset of the Government bond futures contracts will be five-year Government bonds.

Phong stated that this is because these bonds have a high possibility of winning bids and their liquidity is superior to other types of bonds.

The selection of five-year Government bonds as the underlying asset of the Government bond futures contracts is also consistent with the orientations of Resolution No.78/2014/NQ-QH on October 11, 2014 on issuing Government bonds with maturity of five years or more since 2015, he added.

Regarding the trading system, Phong said the derivative trading system for both futures contract products and Government bonds was already prepared. The Hanoi Stock Exchange also completed the test of the internal and integrated systems.

Some notes to keep in mind when trading Government bond futures contracts

- The underlying asset of the Government bond futures contracts is the five-year Government bond with value of 100,000 VND (4.3 USD), annual nominal interest rate of 5 percent, 12-month periodic interest payment.

- Investors could trade at least one contract worth 1 billion VND (42,955 USD) with a price fluctuation range of 3 percent. The reference price is the final payment of the previous trading day or the theoretical price for the new listing contract code. The last payment date is the third working day since the last trading day.

- The last trading day is the 15th day of the maturity month or the previous trading day if the 15th day is a holiday.

- The Government bond futures contract product will have three contract codes with maturities of the last three nearest months. For example, the listing date is December 17, 2018, then the maturity months will be March, June and September, and the transaction contract codes will be VGB5F1903, VGB5F1906 and VGB5F1909 respectively.

- Deposit-making before trading is regulated by the Vietnam Securities Depository Centre and will be applied for two types: initial deposit (projected 2.5 percent) and deposit for contract performance (projected 5 percent). Securities companies can apply deposits equal to or higher than the level announced by the Vietnam Securities Depository Centre.

- Investors can choose position maturity or close the position prior to expiration. When investors want to close the position prior to expiration, they just need to carry out transactions against their original position with the corresponding number of contracts and terms./.