Illustrative image (Source: VNA)Hanoi (VNS/VNA) - The Vietnam SecuritiesDepository (VSD) will apply a new minimum initial margin ratio of 13 percent fromJuly 18 instead of the previous 10 percent for VN30 Index futures to avoidviolations and ensure the security of the derivatives market.
The initial margin is the minimum collateralvalue deposited with the VSD to meet the requirements of clearing members’positions which are expected to open before trading, except close-out positionsof the same trading account.
The VSD on July 13 “sent a written notice toclearing members about the adjustment” and requested them to “review,recalculate the margin requirement value in accordance with new minimum marginrequirements on each investor accounts.”
Clearing members should ask for “additionaldeposits (if necessary)” to avoid “violation of collateral usage rate” and“assure the safety and smoothness of clearing and settlement,” it said.
The previous minimum initial margin ratio of 10 percenthad been applied for the VN30 Index futures derivatives market since itsestablishment in August 2017. It meant clearing members must deposit at least10 percent of the value of the positions placed by clearing members, includingpositions set by investors.
Based on the initial margin ratio of 10 percentset by the VSD, clearing members had to calculate and regulate their owninitial margin rates for their clients that could range between 12.8 percent to15 percent.
According to VSD General Director Duong VanThanh, the minimum initial margin ratio of 10 percent had proven reasonableduring the first year of the derivatives market, helping it to minimise risksin case investors and clearing members were unable to make payments for tradingsettlement and clearing.
In the first year of the derivatives market, theVSD acknowledged the stock and derivatives markets had experienced volatilesessions during which the blue-chip VN30 Index on the reference market and itsfutures values had fallen by large margins, for example, 55 points, Thanh toldtinnhanhchungkhoan.vn.
By July 6, the initial margin rate on thederivatives market had moved between 11.2 percent and 14.5 percent during the252 prior sessions, which was a big increase compared to the rate of 4.4-13.6 percentwhen the market was launched last year, he said.
That was the reason the VSD had asked the StateSecurities Commission to raise the minimum initial margin ratio to 13 percentto improve risk prevention and ensure investors and clearing members were ableto trade given the market’s current volatility, Thanh added.
“The new ratio is not too high and investorsshould not worry about increasing their deposits at clearing members, reducingpressure on the market’s overall sentiment.”
The re-calculation and adjustment of initialmargin ratios is normal for market regulators that are responsible for clearingand settlement and managing trading risks. For example, the Republic of Koreamarket regulator in 2013 tightened the requirements for any individualinvestors that wanted to trade derivatives products. China in 2015 increasedits minimum initial margin ratio to 40 percent from 30 percent combined withthe number of futures positions that could be opened to below 10 contracts.
According to Bui Nguyen Khoa, head of the marketmacroeconomics division at BIDV Securities Co, the latest increase of theminimum initial margin ratio was a smart move by the VSD as VN30 futures hadnot reflected the true quality of the stock market and misled investors aboutits prospects.
“The hike is not over the top and is expected tohelp reduce the potential risks on the derivatives market and maintain itsattractiveness to investors,” Khoa said.
Investors should not blame derivatives tradingfor the steep decline of local stocks in the past three months, he added, asthe slump in the stock market was mainly due to profit-taking and the negativeimpacts of US-China trade tensions.
Trading value on the HCM Stock Exchange hasfallen to around 3 trillion VND (133.3 million USD) each session from about 9-10trillion VND in the last three months, while the trading value of VN30 futureshas risen to as much as 14 trillion VND recently.
“Based on the new margin ratio of 13 percent,the real injection of capital into the derivatives market is around 1.6trillion VND,” Khoa said. “But as the derivatives market requires big leverageand investors should save 50 percent of their money for risk provision, thereal injection into derivatives futures may be around 2.5 trillion VND, 1.5times the practical margin amount.”-VNA/VNS
VNA
