Conditions for derivative investment in Vietnam

Conditions for derivative investment in Vietnam (Internet image)

Regarding this issue, LawNet would like to answer as follows:

1. What are derivatives?

According to Clause 9, Article 4 of the Law on Securities 2019, derivatives are financial instruments in the form of contracts, options, futures, forwards that determine rights and obligations of the parties to pay money and transfer a specific quantity of underlying assets at a specified strike price prior to or on a specified date in the future.

2. Conditions for derivative investment in Vietnam

Organizations and individuals may invest in derivative securities on the derivative securities market;

Except for cases where the competent authority is banned from conducting securities and securities market activities for a definite or permanent period due to violations in securities and securities market activities and other cases of the following specific conditions:

- Securities companies may invest in derivatives only after being granted the Certificate of eligibility for derivatives trading by the State Securities Commission to conduct derivatives trading activities;

- The fund management company may only invest in derivative securities for the purpose of hedging for the portfolio of securities it is holding with respect to entrusted capital from portfolio management activities;

Fund management companies are only allowed to invest in derivative securities for the purpose of hedging risks in accordance with the law on securities investment funds with respect to capital sources of securities investment funds and securities investment companies.

The fund management company is not allowed to invest in derivative securities from its own capital, borrowed capital and other lawfully mobilized capital sources;

- Credit institutions, foreign bank branches may invest in derivatives only after obtaining written approval from the State Bank;

- Insurance enterprises and branches of foreign insurance enterprises may only invest in derivative securities in accordance with the law on insurance business;

State-owned economic groups, state-owned corporations, and state-owned enterprises may only invest in derivatives after they have been permitted by a competent state agency to do so in accordance with the law on management. , using state capital in production and business activities at enterprises.

* Note: In the process of investing in derivatives, trading in derivatives, organizations and individuals are responsible for their own risks and must comply with the law. prohibited under the provisions of the law on securities and securities market.

(Article 16 of Decree 158/2020/ND-CP)

3. Types of contracts of derivatives in Vietnam

Pursuant to Clauses 11, 12 and 13, Article 4 of the Law on Securities 2019, the types of contracts of derivatives are prescribed as follows:

(1) Options are derivatives that certify the buyer’s right and the seller’s obligation to:

- Buy or sell a specific quantity of underlying assets at a specified strike price prior to or on a specified date in the future;

- Pay the difference between the value of the underlying assets determined upon contract conclusion and the value determined prior to or on a specified date in the future.

(2) Futures are listed derivatives that certify the parties’ agreement to:

- Buy or sell a specific quantity of underlying assets at a predetermined price on a specified date in the future;

- Pay the difference between the value of the underlying assets determined upon contract conclusion and the value determined on a specified date in the future.

(3) Forwards are derivatives that certify the parties’ agreement to buy or sell a specific quantity of underlying assets at a predetermined price on a specified date in the future.

Nguyen Thi Hoai Thuong

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