After nearly eleven months of thorough preparation, the Ho Chi Minh City Stock Exchange (HSX) finally scheduled the debut of a new securitised option called covered warrant (CW) for March 2018.

The covered warrant, a high-risk high-return financial product, will be launched on HSX

Le Hai Tra, head of the management board of HSX, announced that the bourse has finished the majority of preparations to launch CW in March, including securing the approval of regulators and the opinions of the market niche.

Regarding the CW trading system, HSX previously partnered up with several associate member securities companies to conduct three test runs in beta test trading transactions prior to the launch.

To date, key securities companies, including Saigon Securities Incorporation (SSI), Ho Chi Minh City Securities Corporation (HSC), VNDirect Securities Corporation (VND), and MB Securities Joint Stock Company (MBS), announced launching the first phase of applying CW on the securities market.

In order to prepare for the debut in March, these securities companies were reported to wrap up the market creation and risk prevention system as well as perfect human resources and business process management.

Simultaneously, HSX collaborated with its associate securities companies in the finalising process, who helped offer CW to interested investors as well as held solicited training sessions from foreign credentialed professionals in the field of financial instruments.

Due to the highly distinctive features of CW, such as high leveragability and profitability in comparison to conventional stocks, the option will likely suit investors of high risk appetite and tolerance and those equipped with a certain amount of knowledge in trading new types of securitised options on a conventional securities market.

With the intent to facilitate investors’ access to CW within the early days of launching, HSX decided to nominate stocks—the most basic and simplest financial product—as the underlying asset of CW which would be conducted in the European-style. The potential deployment of a more complex securitised option than CW relies on the market’s response to the debut in March.

Learning from the experiences of introducing CW to risk­-driven investors from “senior” securities markets, such as Taiwan, Thailand, South Korea, and Hong Kong, the Vietnamese bourse was reported to set strict standards for securities companies who wish to become qualified issuers of CW.

Specifically, each securities business must meet the requirement of owning a minimum charter capital and equity of at least VND1 trillion ($44.03 million), next to zero accumulated loss, qualifications, such as licenses or certificate proving the competence of the securities businesses in handling the securities trading system once CW is launched, as well as special attention paid to risk management throughout the issuance of CW or any other type of securitised option.

Likewise, securities firms qualified to issue CW must have strong financial performance (for instance, capital adequacy ratio of over 250 per cent) and current disposable capital, as they will be required to deposit at least 50 per cent of the total value of offered CW to ensure their ability to pay.

To date, CW appears to be an effective hedging and investment instrument with lower investment costs than conventional financial products, such as stocks and equity funds. Likewise, traded in a similar way as stocks and other commonly traded securities in Vietnam, CW is expected to meet the increasingly diverse and sophisticated investment demand, fostering a new and healthy inflow of foreign direct investment (FDI) thanks to the unlimited foreign ownership in CW trading.

VIR