New points in regulation on derivatives clearing and settlement

The regulation on clearing and settlement of derivatives transactions at the VSD became effective on June 1, 2022.

The regulation on clearing and settlement of derivatives transactions at the VSD is issued together with Decision 61 dated May 16, 2022 of the Director General of VSD. This Decision takes effect from June 1, 2022 and replaces Decision 96 dated March 23, 2017 and Decision 87 dated July 19, 2018.

This regulation guides contents related to clearing and settlement activities at VSD for index futures contracts and Government bond futures contracts listed on the Ha Noi Stock Exchange. This regulation is issued to comply with new legal provisions of the Securities Law 2019, Decree 158/2020 on derivative securities and the derivatives market, Circular 58/2021 guiding a number of articles of Decree 158/2020 as well as the actual operation of the market.

According to the regulation, the Daily Settlement Price (DSP) and the Final Settlement Price (FSP) of futures contracts are stipulated as follows: the DSP and FSP are used by VSD to calculate the daily profit and loss daily position and settlement value when performing index futures contracts and government bond futures contracts. DSP is determined by VSD based on trading price information of futures contracts provided by the Hanoi Stock Exchange. If the transaction price does not meet the calculation requirements, VSD is entitled to use a theoretical price or another price approved by the State Securities Commission.

Along with that, FSP is determined by VSD according to the following principle: Index futures contract is the simple arithmetic average of the index in the last 30 minutes of the last trading day, after excluding the three highest index values ​​and the three lowest index values ​​of the continuous matching session. The FSP is rounded to two decimal places. As for the Government bond futures contract, the DSP of the contract is determined at the last trading day.

Thus, the new regulation has changed the FSP calculation method of VN30 futures contract from ''the closing value of the underlying index at the last trading day'' into ''the simple arithmetic average value of the index in the last 30 minutes of the last trading day after excluding the three highest index values ​​and the three lowest index values ​​of the continuous matching session.

Another new point in the regulation is that the transaction price will be excluded when calculating the required margin and the ratio of using margin assets during the trading session as well as when calculating the DSP according to the weighted average method (in the absence of a closing price). This change will be effective immediately upon entry into force of the regulation. VSD determines the initial margin ratio for index futures and government bond futures contracts based on the following factors: fluctuations in the trading price of futures or the underlying index (applicable to index futures contract), or government bond prices/government bond index (applicable to government bond futures contracts) in a minimum observation period of 90 trading days according to the value at risk method (VaR) and based on the maturity of the futures contract.

Periodically on the 1st, 10th and 20th of every month, VSD redefines the initial margin rate. If the above-mentioned days coincide with a rest day or a public holiday, the re-determining time is the next working day. In case of necessity, VSD has the right to re-evaluate the initial margin rate based on actual market fluctuations and takes effect from the working day immediately following the announcement date.

Regarding the new regulation on the method of calculating FSP of futures contracts on the VN30 index, it is known that previously, the State Securities Commission has approved including this new regulation in the regulation to limit  the possibility of price impact from the stock market and derivatives on the underlying stock market.

Mr. Do Bao Ngoc, Deputy General Director of Vietnam Kien Thiet Securities Company, said that the amendment of this regulation at this time is very appropriate because this is the time when the liquidity of derivatives is high but the liquidity is high on the underlying stock market decreased, while fluctuations in the derivatives market had a great influence on the underlying stock market.

Regarding the validity, Mr. Do Bao Ngoc said that in the past we were concerned that large transactions occurring at the end of the ATC session greatly affect the results of a trading day, but now, with the new calculation method, an average of the last 30 minutes of the session will reduce the impact of such large transactions. In addition, we do not limit  the calculation of time, which means that we can still further extend the time to calculate the average price of the expiration date to 1 hour or 2 hours before the end of the trading day, or include the afternoon session, which would be better.

Regarding the new regulation on the method of calculating FSP of VN30 futures contracts, it is known that the State Securities Commission approved this new regulation to limit  the possibility of price impact from the derivatives market on the underlying stock market.

In addition, Mr. Ngoc also suggested some more solutions such as choosing a broader set of indexes such as VN50 or VN100, giving a lower limit  for the maximum influence weight of one stock in the selected index basket, etc. These solutions will help to limit  "manipulation" of the market, or limit  the impact of large transactions on the stock market.

According to Nguyen The Minh, Analysis Director of Yuanta Securities Vietnam, adjusting the FSP of the VN30 futures contract to avoid the impact on the underlying market is one of the solutions to help solve short-term speculation. The application of the average closing price will partially solve the short selling phenomenon and avoid the downward pressure of the market and increase the transparency of the market.