What is method of determining the size of the clearing fund for derivatives market at the Vietnam Securities Depository?

What is method of determining the size of the clearing fund for derivatives market at the Vietnam Securities Depository?

In Appendix 1, method of determining the size of the clearing fund issued together with Decision 115/QD-VSD in 2022 stipulates method of determining the size of the clearing fund for derivatives market at the Vietnam Securities Depository as follows:

Based on price data, the number of positions held in the past, VSD uses statistical probability formulas to estimate the maximum possible loss (PML - Probable maximum loss) of clearing members with maximum price volatility is possible.

Step 1: Determine the maximum rate of price movement in the past

- Determine the price set of the futures contract (hereinafter referred to as the futures contract for short) with the leading month contract and the set of prices of other types of futures contracts, including the observed transaction prices in the interval atthe time from the first trading day of the market to the current date;

- For each set of prices:

(i) Determine the rate of price movement as follows:

1 = _

x 2 - x 1

;

2 = _

x 3 - x 2

; ……;

n -1 =

x n - x n-1

(Xi is the derivative's price at day i)

x 1

x 2

x n-1

(ii) In the sequence { Δ 1 , Δ 2 , ..., Δ n-1 }, choose Δ i as Δ with the largest value corresponding to the largest increase in price and choose Δ j as Δ with the smallest value corresponding to the largest discount (if any).

- Compare the Δ i and Δ j of the price sets to choose Δ i - max and Δ j - min , which are 02 price movements that will be used in the Stress test scenario:

(1) Increase scenario ( i - max )%

(2) Reduction scenario ( j - min )%

Step 2: Calculate the loss with Stress conditions.

- Using price change in 02 scenarios to calculate position profit and loss for clearing member's accounts on a daily basis based on real data of clearing member within 06 months immediately before the calculation time. The formula for calculating profit and loss for 1 day according to each scenario is as follows:

Position profit and loss = Max (Number of futures contracts of the same type of clearing member after clearing the position; Number of futures contracts of the largest holding account) x DSP x Contract multiplier x Price change interval by each position script

- The total loss/profit under each scenario will be the accumulated loss/profit according to the futures positions => the largest total loss will be called "Loss number in Stress test"

Step 3: Calculate the maximum possible loss of each clearing member based on the number of positions that these clearing members are holding (PML)

- Clearing member's basic PML = Loss in Stress test ± Loss/profit of positions of the preceding trading day - Required margin on the preceding trading day (trading account + trading account) client).

(Note: position loss/gain, required margin is actual data of clearing member)

- Then, determine the total basic PML of the 02 clearing members with the largest PML at each trading day.

Step 4. Determination of Clearance Fund Size

Determine the date with the largest total PML => This loss will be the total required contribution to the Clearing Fund when re-evaluating.

Step 5. Determine the required contribution obligation according to the size of the Clearing Fund of each clearing member

- The contribution obligation of clearing members is determined based on:

+ The ratio between the required maintenance margin (MR) of clearing members to the total MR of all clearing members in the preceding month;

+ Size of the clearing fund;

+ Minimum initial contribution level.

What is payment process to contribute/return support from the Clearing Fund for the derivatives market at the Vietnam Securities Depository?

In Subsection 1, Section I, Appendix 2 Process of deposit, withdrawal, separate management and return of assets contributed to the clearing fund, issued together with Decision 115/QD-VSD in 2022, stipulating payment process to contribute/return support from the Clearing Fund for the derivatives market at the Vietnam Securities Depository as follows:

1. Payment process to contribute/return support from Clearing Fund

a) Clearing members shall transfer money to contribute to the Clearing Fund, transfer money to return assets receiving support from the Clearing Fund to the VSD Clearing Fund's money account at the clearing bank.

The field " Content of money transfer " on the transfer order needs to follow the following format:

(i) For the case of minimum initial contribution:

CF//Clearing Member ID/DGBD

(ii) For additional contributions:

CF//Clearing Member ID/NBS

(iii) In case a clearing member pays money to return the support from the Clearing Fund:

CF//Clearing Member ID/HTSD

Example: Saigon Securities Joint Stock Company, whose clearing member code is: SSI

- Pay the initial contribution to the Clearing Fund, the contents of money transfer are as follows:

CF//SSI/DGBD

- To pay additional contributions to the Clearing Fund, the contents of money transfer are as follows:

CF//SSI/NBS

- Pay to refund the support from the Clearing Fund, the money transfer content is as follows:

CF//SSI/HTSD

b) After the clearing member successfully deposits money into the account, the clearing bank will send a Credit note to VSD in the form of MT910- Credit note to the clearing fund account.

Based on the telegram available from the clearing bank, VSD shall record the increase in contribution to the clearing fund for clearing members.

c) In case the content of money transfer does not match the required format, the payment will not be recorded in the system, VSD will notify the clearing member, the clearing member will send a written request for adjustment to VSD for processing.

What is process of submitting securities contributed to the Clearing Fund for the derivatives market at the Vietnam Securities Depository?

In Subsection 2, Section I, Appendix 2 Process of deposit, withdrawal, separate management and return of assets contributed to the clearing fund, issued together with Decision 115/QD-VSD in 2022 stipulating process of submitting securities contributed to the Clearing Fund for the derivatives market at the Vietnam Securities Depository as follows:

2. Procedure for submitting securities to contribute to the Clearing Fund

a) Clearing member shall send a request to transfer securities contributed to the Clearing Fund according to Form 03/QBT issued together with this Regulation from the clearing member's securities depository account to the securities account contributing to the Fund. clearing in the name of VSD.

b) VSD conducts inspection of qualified securities as prescribed in Clause 2, Article 5 of this Regulation.

c) In case of approval, within 01 working day, VSD shall transfer securities from the clearing member's securities depository account to the securities account contributing to the Clearing Fund in VSD's name and notify the clearing member.

d) In case of disapproval, VSD shall send a notice of refusal clearly stating the reason.

Best Regards!