Derivatives market trading liquidity signals stabilisation
The liquidity on the derivatives market has shown signs of improvement and stabilizing in the past two weeks, beating previous projection that the new trading fees may discourage them from derivative trading.
On February 15th, investors were charged three new fees when making derivative trades, which are the derivative trading fee (paid to the stock exchange) and derivative position management and collateral management fees (paid to the Vietnam Securities Depository).
All three fees are collected by brokerage firms. Among them, the position management fee must be paid to the Vietnam Securities Depository (VSD) when investors trade overnight open interest (OI). The collateral management fee is paid when investors deposit their margin-lending money at VSD.
The fees range from 400,000 VND (17 USD) to 2 million VND per month. In the first five trading days after the new fees were applied on February 15th, liquidity on the derivatives market slightly declined. According to securities firms, investors were discouraged from market trading as the fees seemed unjustified and unnecessary.
In the week between February 15th and February 21st, an average of 87,600 contracts was traded in each session, down 21.6 percent from the average figure of the four days prior to February 15.
But between February 22rd and March 1, liquidity increased sharply with average 136,770 contracts being traded in each session. Market experts and securities companies have agreed that Vietnam’s new derivative fees help regulate and select cash flow in the underlying stock market.
Huynh Minh Tuan, business director of VNDirect Securities Company, told news site ndh.vn that the application of the new fees after one year free of charge was a necessity.
However, Tuan said collateral management fees paid to the VSD were not appropriate and should not be collected, though the derivative trading fee and derivative position management fee were reasonable, he said.
Many neighboring markets in the region are applying these fees to stimulate short-term transactions during the day. He also suggested reducing the derivative position management fee.
He said the imposition of the new fees led to the increases in investment costs and reduces transaction volume.
From the perspective of the Government and management agencies, now is appropriate to charge fees. The underlying stock market has an important position and needs to be strengthened to promote equitization and divestment.
Meanwhile, the derivative market has attracted many speculators and put pressure on the underlying market.
Tuan said the derivative fees would help limit the cash flow of speculators in the derivatives market and direct them back to the underlying market, reducing bad impacts when the market performs poorly.
Agreeing, Nguyen Hong Diep, director of Sai Gon-Hanoi Securities Company (SHS)’s HCM City branch, said imposing derivative fees is a move to regulate cash flow.
Diep said derivatives were not a market but a risk-hedging product. However, derivatives were gradually rising as a profit-making tool rather than risk-hedging. Therefore, cash poured into derivatives was not small and this would affect the underlying market.
Truong Hien Phuong, director of KIS Vietnam Securities Corporation, said charging derivative fees was reasonable.
He said fee collection helped management agencies re-invest into the market and also forced investors to be more careful when making derivative transactions.
Currently, many securities companies offer derivative transactions for free to entice investors to open accounts. However, this had negative impacts and reduced the service quality of businesses, he said.
The former head of IVS Securities Co’s analysis department Nguyen Huu Binh said management agencies had studied carefully before applying the new fees.
“The fees might be expensive for individual investors but this may be the purpose of the management agencies in order to direct institutional investors to derivatives,” he said.