A new investment tool known as a covered warrant, will start listing and trading on the HCM Stock Exchange (HOSE) on November 20, according to MB Securities Company (MBS).

The Ha Noi-based brokerage firm said at a meeting on Wednesday that the State Securities Commission (SSC) had licensed five securities companies to run the covered warrant market.

Beside MBS, the four other securities companies are Saigon Securities Inc (SSI), HCM City Securities Corp (HSC), VNDirect Securities (VNDS) and VietCapital Securities (VCSC).

Shares of the 21 companies in the VN30 Index will become underlying assets for securities companies to issue covered warrants and operate the new market. VN30 Index tracks the performance of the 30 largest stocks on the HCM Stock Exchange by capitalisation and trading liquidity.

The 21 companies must have at least VND5 trillion (US$222.2 million) worth of market capitalisation, a 20 per cent free-float share ratio of the total outstanding shares and no accumulated losses.

Among the 21 companies chosen as underlying assets for the covered warrant market are dairy producer Vinamilk (VNM), property developers Vingroup (VIC) and Novaland (NVL), steel producers Hoa Phat Group (HPG) and Hoa Sen Group (HSG), and FLC Faros Construction Corp (ROS).

Covered warrants are expected to reduce risks and provide more options at a lower cost compared to common stocks and fund certificates.

Covered warrants allow the holder to buy or sell a specific amount of equities, currency or other financial instruments from the issuer, usually a bank or a similar financial institution, at a specific price and time.

They can be guaranteed by a wide variety of underlying financial products, such as company stocks, market indices and fund certificates that meet the requirements of the SSC. The trading is similar to that of stocks, with investors allowed to use their stock trading accounts to buy and sell covered warrants.

The settlement period of a covered warrant transaction will be two days after the trading day (T+2). A covered warrant matures between three and 24 months and there is no limit for foreign investors to trade the new product.

Issuers of covered warrants are securities companies without accumulated losses, charter capital and ownership equity of at least VND1 trillion, as reported in the latest annual and half-year financial reports, and fully licensed securities operations.

As of mid-2017, some 10 securities firms have charter capital and ownership equity of more than VND1 trillion, including Saigon Securities Inc (SSI), VNDirect Securities (VNDS), ACB Securities (ACBS) and VPBank Securities (VPBS), as well as HCM City Securities (HSC) and Viet Capital Securities (VCSC). 

VNS