Vietnam Approves 5 Key Policies for Derivatives Trading Law

The Vietnamese government has approved five key policy directions for the development of a Derivatives Trading Law, marking a significant step towards establishing the nation's first comprehensive legal framework for derivatives (financial derivatives) trading. This approval clarifies the direction for legislation and is expected to enhance market transparency and international connectivity. The approved policies will cover the scope of derivatives trading, participating entities, transaction methods, market infrastructure, settlement, risk management, and cross-border transactions. The approach shifts from primarily managing trading activities to establishing a legal framework that ensures safety and transparency while promoting market development. The aim is to link the derivatives market with the underlying commodity market and gradually deepen its connection with regional and international markets. A notable aspect is the focus on the mutually supportive development of the derivatives market and the underlying commodity market. The underlying market provides commodity supply and hedging needs, while the derivatives market offers tools for managing price volatility risk and contributes price reference information. The growth of these two markets is expected to stimulate each other, enhancing the transparency and efficiency of the Vietnamese market. Furthermore, emphasis is placed on aligning trading infrastructure, settlement and clearing systems, and risk management frameworks with international standards. This includes the development of clearing centers, margin systems, asset management, and risk control tools. The development of physical infrastructure such as warehouses, commodity management, warehouse receipts, and digitalization is also being promoted to strengthen the connection between derivatives trading and physical commodities. The government's management approach will also shift towards promoting development, decentralization of authority, and enhanced supervision. Efforts will be made to improve the investment and business environment, simplify administrative procedures, and reduce compliance costs. The introduction of a "controlled testing mechanism" for innovative products, technologies, and trading methods is also being considered, adopting an approach that fosters innovation while ensuring risk management. From an international perspective, policies are aimed at strengthening foreign participation, cross-border transactions, and connections with overseas markets. This will enable Vietnamese commodities, such as coffee, rubber, and agricultural products, where Vietnam holds a strong position, to engage more deeply in regional and international markets. The derivatives market is expected to serve as a bridge, not only meeting domestic risk management needs but also facilitating Vietnamese products' participation in global price formation. The five approved policy directions form a cohesive framework encompassing the establishment of a legal foundation, development of products and participants, enhancement of infrastructure and risk control, creation of an environment that encourages innovation, and expansion of international connectivity. The ultimate goal is to establish a modern commodity market ecosystem where the underlying and derivatives markets mutually support each other, price formation becomes more transparent, infrastructure is developed, participant expertise is enhanced, and the domestic market progressively connects with the international market. Moving forward, the Ministry of Industry and Trade will collaborate with relevant ministries and agencies to draft and refine the law. This legislation is anticipated to play a crucial role in strengthening the competitiveness and international connectivity of Vietnamese commodities. Source: Nhan Dan