On the morning of November 24, the Workshop on Building and Perfecting the Legal Corridor for the Derivative Securities Market took place in the context of clear growth in derivative securities and the derivative securities market, with transactions on the market becoming increasingly vibrant and diverse.

However, because the market is still new, there are limitations and barriers, thereby posing the challenge of soon completing the legal corridor for the existence and development of this type of security.

Potential risks of unsustainable development

Speaking at the workshop, Dr. Doan Trung Kien - Rector of Hanoi Law University said that the stock market in Vietnam has been operating since the early 2000s and has undergone many significant steps forward, including the formation of specialized stock markets such as the stock market, bond market and then the derivatives market.

The derivatives market coming into operation with the first trading session of VN30 index futures contract is an important event of the Vietnamese stock market, making Vietnam the 5th country in the ASEAN region and the 42nd in the world to have a derivatives market.

The development of the derivatives market aims to fully form the components of the stock market. At the same time, it creates a risk prevention tool for investors and is a favorable premise for the process of mobilizing and clearing capital sources for investment in the country's socio-economic development.

Legal documents on derivative securities and derivative securities markets are issued to build a legal framework for the emergence and operation of this market and at the same time recognize it at a higher level in the Securities Law 2019.

However, in reality, because the stock market in Vietnam is still new, the goods and the level of excitement of transactions in the market are still limited. Therefore, it is necessary to assess the legal practice in Vietnam, taking into account the economic and legal issues in the global market, considering both the perspective of perfecting the legal regulations on derivative securities and the sustainable development of the stock market.

Sharing the same view, Dr. Ta Thanh Binh - Director of Market Development Department, State Securities Commission, found that besides the achievements, the derivatives market still has many limitations such as: The 5-year and 10-year Government bond futures products have not been successful in terms of liquidity; The activities of the derivatives market in general and the VN30 Index Futures product in particular still have limited participation of investors.

This shows that the growth of the market has the potential risk of unsustainable development. In addition, the products on the market are not diversified, with only 2 products: VN30 Index Futures and 5- and 10-year Government Bond Futures.

In particular, Government bond futures contracts have not been successful, have low liquidity and even no liquidity. Therefore, investors focus on trading one product, the VN30 Index Futures Contract, causing product trading to have many unusual fluctuations in recent times, especially during expiration sessions. This creates a need for additional derivative products on the index.

“It can be said that the derivatives market is a new and complex market. Up to now, after 6 years of formation and development, the derivatives market has achieved certain achievements but also has limitations and shortcomings. However, looking at the overall market, it can be said that the operation of the derivatives market is a correct policy of the State and the Government. The derivatives market has been developing from low to high, in accordance with the direction set by the Government” – Dr. Binh acknowledged.

Basis for forming legal framework

According to Dr. Nguyen Minh Hang - Head of the Department of Finance and Banking Law, Hanoi Law University, the emergence of derivative securities is considered inevitable in the increasingly strong development of the stock market.

However, like the stock market in general, the derivatives market needs to be based on a complete and practical legal system to exist and operate effectively.

Dr. Nguyen Minh Hang said that this comes from a number of basic reasons, stemming from the importance of the derivatives market and the relationship between the derivatives market and the underlying stock market.

On the one hand, derivatives trading is associated with reduced volatility in the underlying market, supporting the underlying market stabilization hypothesis. On the other hand, a body of research suggests that derivatives trading leads to increased volatility in the underlying market.

In addition, the derivatives market affects the liquidity of the underlying stock market. Liquidity is an important characteristic for the quality of the underlying stock market. Therefore, when a new financial product appears related to the underlying asset.

Despite certain achievements, the Vietnamese derivatives market is assessed to have grown steadily, traded actively and attracted more and more investors to participate in the market. However, the goods on the market are not yet diverse, leading to the failure to maximize the role of risk hedging as well as increasing investment channels for investors.

After 23 years of development, Vietnam's stock market is still considered a young stock market, easily affected by negative impacts from the domestic economy as well as the world economy. Because the derivatives market in Vietnam is newly established, while the speculative nature and risks in the derivatives market are quite high, the need for a complete legal framework to harmonize the above relationships is extremely necessary.

Based on the experience of other countries in the world, Ms. Hang believes that the legal framework will be the foundation for establishing a centralized, diverse, and larger-scale derivatives market. With state management, the market will operate in a transparent, efficient, and fair manner .