Derivatives

I. Government bond futures contract 

1. Government bond futures contract 

Government bonds or some countries called futures contract products on the interest of buy agreement or selling underlying assets which are government bonds on predetermined prices at a specific in the future. The two parties are obliged to perform that contract at maturity. 

2. The form of 5 years Government bond futures Contract transactions

3. The form of 10 years Government bond futures Contract transactions

4. Trading time

Note:  Not executing ATC periodic order matching session

5. Types of orders

• ATO order: is order to buy/sell derivative securities at the opening price. Order without specific price, write ATO. Orders priority first compared LO orders during order matching and automatically cancel when periodic session finish.
• LO order (Limit order): Order to buy/sell derivative securities at a specified price or better. Orders have specific price and are valid until the end of the trading day or until canceled.
• Market order: buy order at the lowest selling price or sell order at the highest price available in the market. Orders used in continuous matching orders and will be canceled on the trading system immediately after entry if there is no reciprocal order..
• Market to limit (MTL): the order is entered, if it does not match, the remaining will be converted into a limit order.
• Market order match or kill (MOK): if the order is not fully executed, it will be canceled on the trading system immediately after it is entered.
• Market order and kill (MAK): The order may be executed in all or a part. The remaining of the order will be canceled immediately after matching.

6. Trading method

- Matching trading:

• Periodic order matching method: is used to determine the opening and closing prices in the trading session by the method of matching buy and sell orders of derivative securities at the end of the opening session
• Continuous order matching method: is the method of matching buy and sell orders intermediate when order is entered into the trading system based on the principle of determining the executed price which is the price of reciprocal limit orders waiting on the order book.

- Put-through trading: A method whereby the buyer and the seller negotiate with each other on trading conditions. After that, the transaction will be entered into the trading system by member securities companies of sellers and buyers to record the results.

7. Rules of matching order

- Price priority:

• Buy order (Long) with higher prices are executed first.
• Sell order (Short) with lowest price are executed first.

- Time priority: In case the buy or sell orders have the same price, the order entered into the trading system first shall be executed first

- If the reciprocal orders are satisfy in price, the matched price will be the price of the order entered into the system first

 8. Cancel/Amend trading order

- Cancel/Amend trading orders only valid for the orders that have not been executed or the remaining of the orders have not been executed yet.

- Limit order are allowed to adjust prices, volumes and cancel orders during the trading time. The order of priority for order after fixing is determined as follows:

• Order of priority for order does not change if only adjust decrease volumes
• Order of priority for order is calculated since the correction order is entered into the trading system for cases of increasing volume and/or fixing price.

- Amendment and cancellation are not allowed in the matching periodic session.

9. Settlement contract performance

• The settlement method for GB 05 years is physical delivery with final settlement date is the third working day (03) from the last trading day. Seller selects and decides to transfer bond in a delivery bond basket to payment obligation to the buyer. In return, the buyer pays the money when he receives the bond at the final settlement date
• Ha Noi Stock Exchange finalized the list of bonds enough transfer condition for contract codes with the nearest maturity 30 days before the final trading date. If this day is holiday, the finalizing list date is previous trading day. The list of bonds enough transfer condition will be updated to the finalizing date
• Determine settlement obligation GB by cash of buyer 

Settlement obligation GB by cash = FSP x CF x M + AI

- In which: 

• M: Multiplier
• FSP: Final settlement price
• AI: Bond interest beneficiary unpaid calculated from the previous interest payment period until the last payment date (provide by Ha Noi Stock Exchange)
• CF: Conversion ratio (provide by HNX).

- At final trading day (E)

• The buyer proves their ability to pay the money (Bank guarantee, blocking confirmation of bank)
• The seller proves their ability to pay the Government bond 

- At E+2 day: Seller confirms volume and type of government bond to delivery, VSD check to allocate and determine cash payment obligation of buyer

- At E+3 day:

• Seller transfers number of government bond to VSD for VSD transfer to the buyer
• Buyer transfer settlement money to VSD for VSD transfers to the seller