Development of derivatives market in vietnam,graduation thesis

STATE BANK OF VIETNAM BANKING ACADEMY Faculty of Foreign Languages - - GRADUATION THESIS DEVELOPMENT OF DERIVATIVES MARKET IN VIETNAM LECTURER : Pham Nhu Luan (M.A) STUDENT : Tran Thi Giang CLASS : K15ATCC STUDENT CODE : 15A7510048 Hanoi, May 25th 2016 i ACKNOWLEDGEMENTS Firstly, I would like to express my sincere gratitude to my thesis advisor M.A Pham Nhu Luan for his great interest and assistance in the preparation of this thesis Besides my advisor, I would like to give special thanks to all lecturers in Faculty of Foreign Languages since having taught and encouraged me during the last four years at Banking Academy Last but not least, I am grateful to my friends for their support and motivation during the thesis complement process Hanoi, May 2016 Tran Thi Giang i Faculty of Foreign Languages Banking Academy ABSTRACT Although derivatives market has been developing successfully in many countries around the world, derivatives instruments are quite new for Vietnamese investors Based on knowledge about the derivatives I have learned at Banking Academy and real information related to process of forming the derivatives market of some Asian countries, this thesis conducts a study of the reality of developing the derivatives market in Vietnam Since then, the thesis quotes some lessons for Vietnam to build a sustainable market By analyzing figures and summarizing opinions of financial analysis specialist, the research will show that the current context of the Vietnam’s stock market is very appropriate to build and develop the derivatives market aim at solving short-term difficulties of financial market in Vietnam There are four chapters in the research: Chapter 1: Introduction Chapter 2: Literature review Chapter 3: Research methodology and data analysis Chapter 4: Recommendations and conclusions ii Faculty of Foreign Languages Banking Academy TABLE OF CONTENTS ACKNOWLEDGEMENTS ABSTRACT i ii TABLE OF CONTENTS iii LIST OF TABLES AND FIGURES vi LIST OF ABBREVIATIONS vii CHAPTER I: INTRODUCTION 1.1 Current problem statement .1 1.2 Objective and research questions 1.2.1 Objective .2 1.2.2 Research questions .2 1.3 Scope and limitations 1.4 Research methodology CHAPTER 2: 2.1 LITERATURE REVIEW .4 An overview of derivative securities 2.1.1 A brief history of derivatives and derivatives markets 2.1.2 Definition of derivatives .5 2.1.3 Derivatives markets 2.1.4 Purposes of using derivatives .8 iii Faculty of Foreign Languages Banking Academy 2.1.5 Types of Derivatives 10 2.2 Forwards/ Forward contracts 11 2.2.1 Definition 11 2.2.2 Parties of a forward contract .11 2.2.3 Characteristics of a forward contract 11 2.2.4 Payoffs from forward contracts 13 2.3 Futures/ Future contracts 15 2.3.1 Definition: 15 2.3.2 Parties of a futures contract .15 2.3.3 Characteristics of a futures contract 15 2.3.4 Trading mechanism on the futures market 16 2.4 Options contracts .17 2.4.1 Definition 17 2.4.2 Participants in options .17 2.4.3 Types of options 18 2.4.4 Underlying assets .19 2.5 Market participants 19 2.6 Summary for literature review 19 CHAPTER 3: RESEARCH METHODOLOGY AND DATA ANALYSIS 21 iv Faculty of Foreign Languages Banking Academy 3.1 Overview of global derivatives markets in recent years 21 3.2 Reality of developing derivatives market in Vietnam 27 3.2.1 Reality of using derivatives products in Vietnam .27 3.2.2 Overview of Vietnam’s stock market in recent years 29 3.2.3 Legal framework for operation the Vietnam’s derivatives market 34 3.2.4 Opportunities in building the derivatives market in Vietnam 37 3.2.5 Challenges in building the derivatives market in Vietnam 39 3.3 Asian countries’ experiences in developing the derivatives market 41 CHAPTER 4: RECOMMENDATIONS AND CONCLUSIONS 45 4.1 Recommendations .45 4.2 Conclusion 46 REFERENCES 48 v Faculty of Foreign Languages Banking Academy LIST OF TABLES AND FIGURES List of tables Table 2.1 Exchange-traded versus Over-the-counter (OTC) Market Table 2.2 Examples of Common Derivatives 10 Table 3.1 Vietnamese commercial bank pilot the derivatives products 28 Table 3.2 Derivatives on stock indices traded on several exchanges in the world 34 List of figures Figure 2.1 Payoffs from forward contracts 14 Figure 2.2 Trading mechanism on the futures market 17 Figure 3.1 Global derivatives trading volume 21 Figure 3.2 World stock market capitalization January 1992 to May 2015 22 Figure 3.3 Growth in exchange-traded derivatives 23 Figure 3.4 market Total volume of Derivatives on Global exchange-traded derivatives Figure 3.5 Notional amount of global outstanding OTC derivatives contracts 25 Figure 3.6 Gross market value of global outstanding derivatives contracts 26 Figure 3.7 Vietnam’s stock market capitalization value 29 Figure 3.8 Market capitalization of Asia countries in 2014 30 Figure 3.9 VN-index movements in 2014 31 Figure 3.10 HNX – index fluctuation in recent years vi 24 32 Faculty of Foreign Languages Banking Academy LIST OF ABBREVIATIONS ETD Exchange-traded derivatives OTC Over-the-counter CBOT Chicago Board of Trade CME Chicago Mercantile Exchange BIS The Bank for International Settlements GDP Gross Domestic Product HNX Hanoi Stock Exchange HOSE Ho Chi Minh Stock Exchange SCC State Securities Commission VSD Vietnam Securities Depository FX Foreign exchange SIMEX Singapore International Monetary Exchange JSCC Japan securities Clearing Corporation TSE Tokyo Stock Exchange vii CHAPTER I: INTRODUCTION 1.1 Current problem statement In the late 20th century, a strong financial innovation trend formed a financial market area with a wide scale around the globe and grew at a very high speed, which is derivatives market Derivatives in general and the derivatives market in particular have increasingly played an integral role in the whole development of global financial market and stock market Even in the condition of global financial economy volatility, the derivatives market has still grown very strongly on both exchange – traded market and over – the – counter market The reason is that the derivatives are effective risk hedging instruments, helping market participants to minimize risks before market fluctuation In Vietnam, derivatives originated from commodity and currency have been used for many years, which shows investors’ demand for finding an insurance tool before changes in real assets price (rice, coffee,…) In addition, although Vietnam’s stock market has operated for 15 years, the number of trading goods is not diverse, just including common stock, a few of investment fund certificates Therefore, it is very essential to build a derivatives market in Vietnam to meet investors’ demand for risk management prior to the market volatilities As a result, in 2014 Prime Minister Nguyen Tan Dung has approved the project of "Building and developing the derivatives market in Vietnam" to build a centralized and unified derivatives market operating under the management of the State rather than a freely formed and spontaneous market Then, Decree No.42/2015/NĐ-CP on derivatives and derivatives market was issued by Government, and Circular 11 was launched by Ministry of Finance in January 2016 to guiding for a number of contents of Decree No 42 This creates a fundamental legal framework for the first derivatives market establishment in Vietnam The derivatives market is quite new to Vietnam, so it is undeniable that developing a State-controlled centralized derivatives market following international technical Faculty of Foreign Languages Banking Academy standards brings both opportunities and challenges for Vietnam Therefore, it is much necessary to research about the market development conditions, preparation for operate the Vietnam’s derivatives market in 2016 as well as orientations for developing the derivatives market in parallel with the stock market until 2020 Furthermore, it is truly crucial to be aware of opportunities and challenges in the process of setting up the formal derivatives market in Vietnam Since then, Vietnam may learn from international experiences of some countries in region succeeding in developing the derivatives market like Japan, China, Singapore … 1.2 Objective and research questions 1.2.1 Objective The objective of this study is to understand about some kinds of derivatives instruments, including their characteristics, roles, trading market… as well as the derivatives market’s features, market participants Then, it is essential to find out development of global derivatives market, reality of using the derivatives in Vietnam and current Vietnam’s market conditions compared to other countries Also, the main target is to have a comprehensive look at developing the Vietnam’s derivatives market, including potentials along with difficulties for authorities, securities companies and market participants Finally, the thesis hopefully could offer several recommendations to tackle the existing issues 1.2.2 Research questions The thesis should be able to answer the following questions:  What are the derivatives?  What are the features and roles of derivatives?  What is the derivatives market development roadmap in Vietnam?  What conditions the market participants need to enter into the market?  What opportunities and challenges for authorities and market participants? Tran Thi Giang 15A7510048 Faculty of Foreign Languages Banking Academy debt solving and investment capital The world’s low oil prices will raise difficulties for oil and gas share trading To sum up, the Vietnam’s stock market is being affected significantly by external factors, so it is very essential to establish a derivatives market in Vietnam in order to supply investors with an effective insurance tool prior to the market fluctuations and improve the liquidity of the stock market Thus, the establishment of the official derivatives market is essential for the stock market’s development 3.2.3 Legal framework for operation the Vietnam’s derivatives market Under Decision No.366/QD-TTg of the Prime Minister, dated 11 March 2014, Vietnam’s derivatives market development is taking place according to the following timeline: “Period 2013-2015: Creating a legal framework and complete physical and technological infrastructure for derivatives market development, including trading systems, the settlement system for derivatives and the system for disclosing information and monitoring at stock exchanges, securities depository centers, ensuring consistency with underlying assets, and preparing the necessary conditions for an operational market Period 2016-2020: Organizing operation of the derivatives market with derivatives products based on securities indices, Government bonds and stocks Period after 2020: Improving the quality of the derivatives market, gradually diversifying traded products, expanding market participants, improving technological infrastructure The ultimate aim is to form a unified derivatives market in accordance with international practices, and a market operating effectively, publicly, and transparently” Tran Thi Giang 34 15A7510048 Faculty of Foreign Languages Banking Academy On May 5, 2015 Decree No 42/2015/ND-CP (Decree 42) issued by the Prime Minister provides a detailed legal framework for derivative securities trading in Vietnam This decree regulates on Vietnam’s derivatives operation as follows: Types of derivatives traded in the derivatives market: As scheduled, the derivatives market will launch from simple to complicated products so as to ensure the capability of managing and controlling market risks In the early stage of establishment, derivatives products launched to trade in the market are futures contracts basing on stock indices, Government bonds and shares The first traded instruments will be share indexes (HNX30 and VN30) and Government bonds futures with five-year terms Derivatives basing on stock indices are selected because they may implement three important market functions, including raising capital, capital allocation and risk diversification Table 3.2:Derivatives on stock indices traded on several exchanges in the world Countries Stock indices Futures Indices name Stock indices Options The US S & P 500 4/1982 1/1983 Australia All ordinaries 2/1983 1983-1987 Korea KOSPI 200 5/1996 7/1997 Hong Kong Hang Seng 5/1986 N/A Nikkei 225 9/1986 1986 Thailand SET50 4/2006 2007 Taiwan (TAIFEX) TAIEX 7/1998 N/A Japan (OSE) Nikkei 225 9/1996 N/A England (LSE) FTSE 100 5/1984 N/A Singapore (SIMEX) Tran Thi Giang 35 15A7510048 Faculty of Foreign Languages Banking Academy It can be seen from the table that the derivatives basing on stock indices were traded on the derivatives market for a long time According to statistics from many countries around the world, this tool is a preferred choice and a fundamental product for the building of derivatives market in many countries During the next phase, other products will be launched in accordance with the development status of the market and investors’ demand Thus, there will probably be equity index options and single stock options, futures contracts and option contracts with underlying assets of stocks, bonds, currency or commodity Participants in the derivatives market The market participants include settlement banks (clearing members), intermediaries (securities companies, commercial banks) and investors from both enterprises and investment funds According to Decree 42, trading members are licensed securities companies with chartered capital of at least VND800 billion (US$36.7 million) They are allowed to trade on their own account and provide brokerage services to investors trading in derivative securities To become a direct clearing member, commercial banks’ required equity amount is VND7 trillion, and for securities firms, the minimum is VND1.2 trillion (US$55.0 million) It is estimated around 15 - 20 securities companies and 20 banks meet the requirements to initiate the market In the coming years, as the entire stock market will be restructured, the number of larger companies will increase through mergers and acquisitions Market makers are trading members or special trading members who are also clearing members They just sign an agreement with the Stock Exchange to become market makers and enjoy specific incentives given by the Stock Exchange for such a role Tran Thi Giang 36 15A7510048 Faculty of Foreign Languages Banking Academy Derivatives clearing and settlement mechanism Decree 42 regulates the overall mechanism for the clearance and settlement of derivatives transactions and risk management In which, Hanoi Stock Exchange (HNX) will transactions on the derivatives market, while the Vietnam Securities Depository (VSD) will be responsible for performing clearing and settlement activities according to Notice No 448/TB-BTC launched by the Vietnamese Ministry of Finance in July 2015 The derivatives market will be supervised by the State Securities Commission (SSC) and directly controlled by the Ha Noi Stock Exchange (HNX) HNX and VSD agreed to choose FPT Information System (FPT IS) as the main bidder, and the GMEX Group as the solution provider for derivatives trading, clearing and settlement systems Each clearing member is obliged to deposit an initial margin in cash or securities with the VSD and may be deposit more to satisfy a maintenance margin Members could test the market in September and October 2016 with HNX and VSD playing the role of market operator and clearing house, before the official launch of the market at the end of 2016 3.2.4 Opportunities in building the derivatives market in Vietnam For securities companies, The derivatives market may have direct and indirect effects on securities companies’ profitability In indirect way, revenue on original securities brokerage could increase due to an increase in liquidity and trading value on the stock market In direct term, the securities companies may participate in trading and derivatives brokerage for their customers However, it is not easy for any securities companies to involve in the potential market, but hiding a variety of risks Based on decree 42, trading members on the stock exchange and clearing members of the Vietnam Securities Depository must meet a range of requirements about capital Tran Thi Giang 37 15A7510048 Faculty of Foreign Languages Banking Academy scale, disposable capital ratio, technical and technological infrastructure, and staff’s professional practice certificates Specifically, trading members permitted to provide brokerage services must have chartered capital of at least VND800 billion As a result, the derivatives market is a playground for only large securities companies This caution is very necessary due to the complexity and high financial leverage of derivatives It is notable that demand for using the derivatives usually focus on institutions; therefore, the securities companies own a large market share of the institutions might take many advantages in this field For investors as institutions and individuals, The derivatives market provide instruments helping investors to hedge some risks like exchange rate risk, default risk, liquidity risk, or unforeseen volatilities in the market In which, financial institutions are members directly using the derivative products with similar purposes to the investors such as hedging, speculation and arbitrage Moreover, the financial institutions involving in the derivatives market could increase services revenue, better meet customer needs with specialized products Therefore, the intermediaries may enhance their competitiveness and confirm their modern bank’s position with advanced products based on international customs Furthermore, the derivatives also indicate future price signs of the underlying asset Professional investors, investment funds will be the first audience interested in new products They might earn a huge profit from speculating and arbitrage thanks to the financial leverage of derivatives but always facing potential risks For Vietnam’s stock market and economy, The derivatives market is an inevitable step in the development of the Vietnamese securities market Apart from risk hedging for investors, it is expected to improve liquidity for Vietnam’s stock market, enhance the stock market’s role in the financial market, attract both foreign and local investors, and become a safe and long-term capital mobilization channel to develop the economy Tran Thi Giang 38 15A7510048 Faculty of Foreign Languages Banking Academy In the derivatives market, the financial institutions act as intermediaries, trading members who provide risk management tools, connect buyer and seller demands, thus increasing liquidity for the market The development of derivatives market in Vietnam will help foreign investors more confidence in investing in Vietnam's stock market because the derivative is a very effective risk hedging tool as views of the foreign investors Since then, the Vietnam’s derivatives market may attract both professional and small investors to enter, which helps gradually expand the market size 3.2.5 Challenges in building the derivatives market in Vietnam The derivatives market establishment is an inevitable step in the development of Vietnam's stock market However, the derivatives and the derivatives market are completely new in Vietnam Thus, operating and providing services in this market pose certain challenges for both authorities and market participants First, Vietnam stock market scale is still modest compared to other countries in the region and around the world Compared to global capitalization market ($67 trillion in 2015), Vietnamese market is just equal to 0.09% ($58.8 billion in 2015) The Vietnam’s market capitalization to GDP index was at 33.7% at the end of 2014, significantly low compared with countries such as Thailand, Singapore (99.84% and 235.93%, respectively) In addition, the number of foreign investors participating in the market was still low According to statistics, the trading value of institutions accounted for 14.5% of the total market in 2014 In 2015, due to world economic difficulties, US$540 billion fled from emerging markets, particularly after FED raised interest rates Only within two years, more than US$1,000 billion was withdrawn from emerging markets, including Vietnam Tran Thi Giang 39 15A7510048 Faculty of Foreign Languages Banking Academy Second, the challenge of completing a legal framework and infrastructure for organizations and operation of the derivatives market in Vietnam Derivatives market is a complicated market with a variety of potential risks Thus, in order to operate the market efficiently and safely, authorities need complete a unified legal framework helping the investors go right path, get investment opportunities and predict forehead risks of the derivatives contracts In addition, it is truly necessary to find out and learn from some countries’ experiences to build a modern clearing payment model, help the investors save trading time and manage themselves risks due to pre-predict of the market Third, Vietnam’s market lacks liquidity, which is a big issue when the derivatives market officially operates The Vietnam stock market has remained a small scale, and level participation of investors and foreign organizations is still modest Particularly, foreign capital in Vietnamese stock market maintained the ratio of 8-15 percent per session (2015) and focused on three main groups including banking, financial services, and construction and building materials Foreign investors poured about VND2.8 trillion (US$125 million) in 2015 into Vietnam’s stock market, decreasing by 13 percent against 2014 In reality, the Vietnam stock market is still in early development stage, and securities products are not diverse Besides, the market has been affected strongly by external factors, so it is not easy to made investors confident in the market, especially the foreign investors Fourth, investors have a shortage of knowledge about derivatives market Without the experience of such a market, the operations could be either new or too complicated for local investors, who account for 80 per cent of investors in Vietnam The difficulty is how to unify a common understanding about the products, as well as about the management method It is most important to effectively educate Tran Thi Giang 40 15A7510048 Faculty of Foreign Languages Banking Academy competent agencies and investors about the benefits and risks associated with derivatives 3.3 Asian countries’ experiences in developing the derivatives market In reality, it loses a lot of time to build a standardized derivatives market, from the elaboration of the legal framework, and systems to the technology, and particularly administration The reason is that the derivatives market is complex and risk for both regulators and market participants Therefore, it is really necessary to research, and then learning international experiences, especially from Asian countries to developing the derivatives market These experiences may help Vietnam draw some valuable lessons for building the derivatives market, as follows: First, completing legal system in parallel with issuing several policies to encourage market development Most of the basis stock markets have been formed because of society’s needs, and these markets are commonly established prior to completing legal framework However, to build a derivative market with sustainable development and safety, it is essential create the comprehensive and clear legal framework The reasons are that the derivatives market is a high-level stock market operating on the basis of leverage tools, low margin ratio; thus, speculative activities may also cause market manipulation as well as offer potential risks for the financial system Singapore is one of the countries having developed successfully the derivatives market Singapore’s derivatives market was set up in 1984 with the establishment of Singapore International Monetary Exchange (SIMEX) The market’s primary products are futures on Nikkei 225 index In December 1999, three markets including commodity derivatives (SICOM), securities derivative (SIMEX) and currency derivatives (SES) merged into Singapore Exchange (SE) so as to create advantages for Tran Thi Giang 41 15A7510048 Faculty of Foreign Languages Banking Academy management, save resources for building the infrastructure as well as centralize high quality human resources Singapore Exchange (SE) is the independent organization supervised by Monetary Authorities of Singapore and takes responsible for issuing regulations on market management As the derivatives market was newly founded, market authorities made a reasonable decision, which was allowing Singapore’s derivatives market to be linked to Chicago market, the oldest and most developed derivatives market in the world Therefore, investors can their transactions between two markets at free cost This regulation attracted many investors to enter the market in the early formation stage, which built a strong foundation for Singapore’s derivatives market to develop rapidly and sustainably Besides, requirements for market participants are also specified for each group, for example: For trading members as individuals: to be a professional derivatives dealer, with full knowledge, understanding of derivatives, no minimum capital requirement For payment members: must have minimum capital of SGD million and a license to provide capital market services and meet the highest financial standards Since 2004, Singapore has begun to trade stock options, continuing to get success The reason is that Singapore has launched a variety of mechanisms and policies to create favorable conditions for investors, such as: (i) Replace the system matching orders on exchange by online electronic trading system, (ii) No prospectus requirements, (iii) Reduce standards to list options Second, investing in modern infrastructure to meet complex requirements of the derivatives market Derivatives trading requires modern technical infrastructure, especially information technology systems because the derivatives transactions must be matched continuously at high speed Thus, the requirements of modern information technology Tran Thi Giang 42 15A7510048 Faculty of Foreign Languages Banking Academy system are inevitable Besides, it is very essential to build a central counterpart (CCP) model so as to be able to managing the complicate operations of the derivatives market Vietnam could learn from Japan's experience in developing the CCP system Before 2002, the derivatives market in Japan had separate clearing operations in each area However, in order to meet urgent need of clearing and settlement systems, centralizing clues, as well as to reduce payments volume through clearing mechanism covering the whole market, Japan securities Clearing Corporation (JSCC) was established in 2002 JSCC is a subsidiary company of Tokyo Stock Exchange (TSE) with amount of share capital at JPY 9.25 billion, in which TSE (87.7%); Osaka Securities Exchange (11.5%); the other stock exchanges in Japan (0.8%) JSCC's activities relate to the whole real clearing and settlement on the TSE, and JSCC also plays a role as an organization CCP in profession of derivatives In this model, if a party involving in transaction does not carry out its obligations, the CCP will implement instead for the person This leads to help minimize credit risks, save time and payment costs, prevent default risk and systemic risk In recent years, the Japanese securities clearing and settlement systems has continuously developed and been improved due to business environment’s changes lessons drawn from global financial crisis in 2008 In particular, the CCP’s scope of operation has been expanded, covering derivatives products on the OTC market Third, building a strong stock market, meet the requirements of developing derivatives Derivatives market is the most highly developed architecture, operating based on leveraged hedging tools In the world, the derivatives market has been developed by market management authorities when the basis stock market develops at high level and short-selling activity, margin trading and day trading have been implemented Tran Thi Giang 43 15A7510048 Faculty of Foreign Languages Banking Academy Therefore, according to the countries’ custom, the derivatives market developed very late compared to basis market For example, China just began to develop derivatives products in 2002 (20 years after establishing the stock market) Singapore has also prepared for almost 10 years before founding the derivatives market Currently, Vietnam’s derivatives market is forming in the context of the incomplete fundamental products of the basis market The number of securities is large, but quality is low Majority of companies listing or registering to transactions are the medium and small companies, and their transparency in the information disclosure is still low Short sales transactions have just appeared and are not permitted for circulation by the SSC Tran Thi Giang 44 15A7510048 Faculty of Foreign Languages Banking Academy CHAPTER 4: RECOMMENDATIONS AND CONCLUSIONS 4.1 Recommendations First, providing information and advising on derivatives for investors Experience in deploying derivatives market in the world indicates that the number of investors who are interested in entering into the market is an important factor, which creates high liquidity for the market Therefore, the organization of training and publicize knowledge for investors has been identified as a top priority, must be deployed very soon before opening the derivatives market Providing information and popularizing knowledge might implement by many ways, through Internet, mass media, newspaper,… Establishing investment consulting center on derivatives to train, offer certificates and give advice on investors Second, develop a modern and stable technology background The Government needs to develop a modern and stable technology background so that members and investors on the derivatives market could control risks and fasten trading processes Promoting investment in equipment, synchronizing information technology solutions, including transaction systems, surveillance systems, information announcement systems, clearing and settlement systems are necessary measures to kick-start the derivatives in Vietnam… These systems must be built with modern design based on international standards Third, enhancing human resources quality Tran Thi Giang 45 15A7510048 Faculty of Foreign Languages Banking Academy The SSC need build a training plan to popularize knowledge for staff in detail according to the derivatives market development timeline Authorities also conduct training basic knowledge about derivatives, and then intensive training, offering professional practice certificates for staff Training may organize according to centralized training or updated training through television, newspapers, mass media… Fourth, attracting market participants In Vietnam, the trading volume of investors as institutions accounts for a majority; thus, if the market is able to attract them, this action will create belief for investors as individuals, increasing liquidity for the market In addition, it is necessary to attract foreign investors having professional knowledge about trading derivatives to participate in the market by reducing market entry barriers for them like capital condition, strict legal lobby… Besides, it is essential to complete legal framework for the derivatives markets to ensure information transparency As a result, trading volume on the market may increase significantly, enhancing market liquidity The Government also needed to develop a modern and stable technology background so that members and investors on the derivatives market could control risks and fasten trading processes 4.2 Conclusion In context of increasingly intensive international integration as well as Vietnamese “young” financial market, the come-into-being of the derivatives market is considered an inevitable development in order to meet the development requirements of the stock market in Vietnam In the world, the derivatives market has been developing successfully for a long time; however, the market is quite new in Vietnam It can bring substantial economic benefits such as providing an effective risk-management instrument and raising the capital with low and diversified costs for the market Tran Thi Giang 46 15A7510048 Faculty of Foreign Languages Banking Academy Recognizing the importance of derivatives to Vietnamese financial market, March 2014 Prime Minister Nguyen Tan Dung approved a project to develop a Statecontrolled centralized derivatives market along with proposal of restructuring the entire securities market In reality, derivatives transactions have appeared in Vietnam for a long period, but trading volume has been not large Vietnamese authorities’ market management experiences are also quite restrictive, so it is necessary for Vietnam to learn international experiences in developing the sustainable derivatives market Furthermore, challenges and difficulties are unavoidable issues in the early formation of the derivatives market Therefore, the authorities and investors need give appropriate solutions to tackle this problem Tran Thi Giang 47 15A7510048 Faculty of Foreign Languages Banking Academy REFERENCES John Hull, (2012), Options, Futures, and Other Derivatives (8th ed.) Adrian R Bell, Chris Brooks and Paul R Dryburgh (2013), The English Wool Market Shirreff, David (2004) "Derivatives and leverage" World Federation of Exchanges Ltd (2015), "Annual Statistics Market Highlights report in 2014" World Federation of Exchanges Ltd (2016), "Annual Statistics Market Highlights report in 2015" Michael Chui, (2012) “Derivatives markets, products and participants: an overview” M.Shamsher, H.Taufiq (2007), “Asian Derivatives Markets Research Issues" Dubravko Mihaljeka, Frank Packer (2010), “Derivatives Markets in Emerging Countries” http://www.investopedia.com http://www.the-financier.com www.encyclopedia.com http://vneconomictimes.com/ http://www.lexology.com/ http://tapchitaichinh.vn/ http://www.dealstreetasia.com/ http://cafef.vn/ http://www.vietnam-briefing.com/ http://worldexchanges.org/ http://marketvoicemag.org http://www.worldbank.org/ Tran Thi Giang 48 15A7510048