Vietnam’s stock market ready for trading of covered warrants

Covered warrants are securities issued by securities companies, who are eligible to follow regulations on hedging activities.

Covered warrants allow the holder to buy (call warrant) or sell (put warrant) the underlying stock (including shares, bonds or other securities) at a specific price on or before a pre-determined date. If the actual price of the underlying stock is contrary to the judgment of the investor, the maximum loss is limited to the initial purchase price of the warrant.

The covered warrant products will be large-cap stocks listed on the VN30, as they meet requirements on market capitalization, trading liquidity, and the percentage of free-float shares. The trading of covered warrants are similar to stocks, as investors are allowed to use their stock trading accounts to buy and sell covered warrants.

Tran Anh Dao, deputy general director of the Ho Chi Minh City Stock Exchange, said covered warrants would contribute to perfecting the Vietnamese stock market, which focuses mainly on basic products such as stocks, bonds and fund certificates. It offers lower investment costs and higher leveragability than conventional financial products, and expects to help investors limit losses and make higher profits.

As there is no cap on foreign ownership of covered warrants, they are expected to draw more foreign investment.

The issuance of covered warrants will enhance business performance of securities companies, contributing to creating an additional source of income. In addition, to become covered warrant issuers, securities companies must invest in infrastructure and improve the quality of human resources in order to perform complex and specific operations, such as product design, hedging activities and market creation.

In preparing for the listing and trading of covered warrants on the Vietnamese stock market (expected on June 28, 2019), the State Securities Commission has instructed securities companies to update, revise and supplement information in the application of offering covered warrants; continue to test the system, and review professional procedures and risk management procedures to ensure the trading of covered warrants that would not affect the stability of the stock market, while protecting the rights of investors; and provide guidance and information related to the trading of covered warrants for investors.