Derivatives problems addressed

HÀ NỘI — The Finance Ministry has issued a new circular to help resolve problems in the development of the derivatives market.

The new circular (Circular 23/2017/TT-BTC), was issued on March 16, amending and supplementing Circular 11/2016/TT-BTC issued in May 2015 to help securities companies (market members) develop derivatives products.

In the new circular, which will take effect on May 1, 2017, the ministry provides the definition of a total trading account. The total trading account is an investor account in which trading (selling/buying) options for a future contract (with the same guaranteed asset and expiration date) remain open until the securities company settles the transactions on the request of or negotiations with the investor.

The investor has to make sure the positions comply with the regulations provided by the Việt Nam Securities Depository (VSD). In case the positions exceed the limit, the investors must conduct counter trading orders to reduce the value of positions and make additional deposits within a time limit in accordance with VSD regulations.

If the investor fails to reduce the value of positions, the securities company, as a settlement company, and the VSD will carry out counter trading transactions to close a part or the whole of the investor’s positions.

The new circular also enables some investors to open total trading accounts, including fund management firms that can open one total account for domestic invested trusts and another for foreign invested trusts.

Brokerage firms that are set up in overseas markets can open one total trading account to perform their derivatives brokerage activities for foreign investors.

The new circular also allows the opening of deposit accounts at commercial banks for investors in the names of the settlement companies. The settlement companies can use the deposit accounts for their trading activities.

The transaction settlement activities are settlement of position profits/losses and settlement of trading executions.

For the settlement of position profits/losses, the value of a position profit/loss settlement is determined daily

On contract settlement, the circular stipulates that if the contract is settled in cash, the settlement will be completed on the settlement of the last trading day position profits/losses. If the contract is settled in asset transfer, the seller must hand over the assets and the buyer must settle the transaction in cash.

On the last trading day, the value of the position profit/loss settlement is calculated on the open positions in investors’ accounts and the difference between the last trading day’s settlement price and the day-end settlement price of the last transaction; or between the settlement price and the last trading day’s settlement price for positions being closed before the expiration date. — VNS