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Commercial Banking System Has Not Played Its Role Well


Accepting new business ideas is one of the strengths in developing commodity derivatives trading in Vietnam. The problem is to have a suitable solution to turn this potential strength into practical effects in the development process, it is necessary to absorb experiences in the current situation, have policies to shorten and anticipate new development trends of commodity derivatives trading. The establishment of commodity exchanges represents a breakthrough in the international integration of the production and circulation of Vietnamese goods into the world economic system. With commodity derivatives trading, market participants need to have a scientific business plan, the phenomenon of asymmetric information creates business opportunities that will gradually decrease and with new products on the market such as commodity derivatives trading, it has created new thinking in business. The commodity derivatives market will help provide enough modern tools to be able to build new business strategies that are effective and suitable for economic and financial development.

can be carried out actively when there are many participants in the market with diverse needs. 60% of the interviewed experts said that the limited ability of customers to participate in transactions is one of the main weaknesses for the development of commodity derivatives trading in Vietnam.

W5: Commodities in derivatives trading are not diversified: Vietnam has strengths in many commodities, but these commodities have not been used as the basis for derivative products. Of course, there needs to be a roadmap and some commodities can be selected as a pilot, but each commodity has its own characteristics and complements each other, so diversifying underlying assets is still the right trend and should be implemented as soon as possible. The contract products traded on the commodity exchange are not rich and diverse, making sellers, buyers and investors not interested in participating. 50% of surveyed experts believe that the lack of diversity of underlying commodities is one of the weaknesses in developing commodity derivatives trading in Vietnam.

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Commercial Banking System Has Not Played Its Role Well


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O1: Vietnam's economy is developing: this is a great opportunity for derivative activities, Vietnam's economy is developing dynamically, the growth rate is not high but can be maintained for a long time. To continue the growth momentum, the economy must increasingly improve macro issues towards transparency and flexibility in supply and demand relations, from which fluctuations will become larger and the market will need derivative tools to limit risks and have an additional modern investment channel. 100% of the surveyed experts agreed that Vietnam's developing economy is a great opportunity to develop new products, including commodity derivatives trading.

O2: Need to improve markets: starting from the financial market with foreign currency derivatives so that businesses and banks have the opportunity to hedge exchange rate risks, interest rate derivatives to hedge interest rate risks, stock derivatives to diversify investment tools, diversify investment strategies, gold derivatives to have more investment channels, commodity derivatives to hedge fluctuation risks

price dynamics, brand enhancement

T


T1: Infrastructure is not yet developed synchronously: to develop commodity derivatives trading, Vietnam needs to have a developed and synchronous infrastructure. Transportation and electricity, the two most essential infrastructure activities, are the two infrastructure areas considered the weakest in Vietnam when power outages and traffic congestion are occurring more and more frequently. Another factor that is of great concern to participants in trading on the floor is the risk related to information technology. Participants are worried about whether their transactions are recorded accurately, how transaction history is stored, whether transaction details are changed or not, or if the trading floor software is attacked, what the trading floor's handling options will be. This is a big challenge if Vietnam wants to maintain a high economic growth rate in the coming years. 100% of surveyed experts agreed that underdeveloped infrastructure is a major challenge for the development of commodity derivatives trading in Vietnam.


Vietnam. In addition to the traditional trading forms of each market, with the need for new development, each market is facing new opportunities to perfect the trading market. This is a two-way impact, vibrant spot trading will be the basis for developing derivatives trading, conversely, effective derivatives trading also helps support the sustainable development of spot trading. 90% of surveyed experts believe that the need to perfect the derivatives market and the need to insure against risks of commodity price fluctuations are opportunities to develop commodity derivatives trading in Vietnam.

O3: Demand for increased integration: integration is an inevitable factor for a developing country like Vietnam. To develop, Vietnam must promote economic, financial, investment and trade integration. Opportunities from integration are market expansion, receiving new capital flows, increasing competition in human resources, thereby increasing work efficiency, accessing new business models, accessing good management lessons, lessons learned about success and failure from markets with similar factors. Integration

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T2: The psychology of fear of change: traditional spot trading has been ingrained in the minds of agricultural growers and commodity producers in Vietnam. The supply side of goods is used to selling to traders, traders collect goods and then sell them to processing and exporting enterprises. The advantage of this trading method is that it is convenient because traders come to the place to buy goods, but it is very disadvantageous in terms of transaction prices and industry development orientation. Because there are no high commodity standards, traders cannot support farmers and growers in terms of plant varieties, livestock, farming techniques as well as farming orientation. Trading through the exchange will improve this problem, but in the short term it is also an obstacle for farmers and agricultural growers, so changing the trading method is a challenge for Vietnam. 100% of surveyed experts believe that the psychology of fear of change is one of the main challenges in the development of commodity derivatives trading in Vietnam.

T3: Limited capacity and management mechanism


will also increase the opportunity to cooperate or join international organizations necessary when conducting a standard transaction. 80% of the experts surveyed said that the need for increased integration is an opportunity for the development of commodity derivatives trading.

O4: Gaining experience in market development and management: commodity derivatives trading is new to Vietnam, but many countries have applied it first, experienced their own difficulties and succeeded, such as Japan starting in 1985, China in 1992, Malaysia in 2002, Korea in 1999, Thailand in 2000, ... This creates a great opportunity for Vietnam, because it is a latecomer, Vietnam can receive many lessons in building, operating, managing and developing the market. This opportunity can be through consulting activities from foreign organizations, development support from abroad or from research with appropriate scale. This advantage will help Vietnam build the most suitable operating model for itself and avoid failures and losses from lessons learned from other markets.

previous school. Gained experience

Limitation : The management capacity of the competent authorities needs to be quickly improved to ensure that it can keep up with and anticipate the development and risks of derivative transactions. Issues related to operations such as tax calculation, profit, accounting, reporting mechanism, etc. need to be understood correctly according to international practices and built in accordance with Vietnamese conditions. The management mechanism also needs to be clearly established to avoid overlap leading to ineffective management. 80% of the surveyed experts believe that this is a big challenge for the competent authorities to develop commodity derivative transactions.

T4: Building a sustainable financial and banking sector: for the economy to grow and develop stably, the financial and banking system needs to be stable. Recently, the Vietnamese banking system has encountered many major problems, especially bad debt, cross-ownership, hot credit growth, bank merger trends, etc. Restructuring banks, making banking operations transparent, resolving bad debts, and increasing financial strength for the Vietnamese banking system are all trends.

inevitable direction but this is clearly a


Management experience will help organize implementation and increase market efficiency. 80% of surveyed experts agree that gaining experience from markets is a good opportunity to develop Vietnamese commodity derivatives trading.

O5: Adopting modern technology: Technology here includes technology to ensure smooth transactions, to be able to develop other products in the future, to be able to manage customer information, transaction information, and transaction risk management well. The opportunity here is that because there are many markets before Vietnam, it is possible to choose a technology suitable for the derivatives market that Vietnam wants to build to buy or build similarly. 75% of surveyed experts agree that adopting technology from successful countries is an opportunity to develop commodity derivatives trading. Technology can also guide the development of products suitable for the market.

huge challenge at present. 75% of surveyed experts believe that building a sustainable finance and banking industry is a challenge to develop commodity derivatives trading in Vietnam.

T5: Build simple, easy-to-use trading products: derivative products are very complex, especially determining commodity trading standards that are suitable for Vietnam's conditions while still ensuring international standards to be able to link operations between domestic exchanges and foreign exchanges. The challenge here is to build those complex products into simple products that can facilitate trading participants while still ensuring the interests of all parties involved. 60% of surveyed experts agree that building suitable products is a challenge to develop commodity derivatives trading in Vietnam.


Source: Author's synthesis


2.5. MAIN CAUSES OF LIMITATIONS


2.5.1 Legal basis still has many limitations


Although the first commodity exchange in Vietnam was established in 2002, it was not until 2005 that all activities of commodity exchanges were regulated in the 2005 Commercial Law with 11 articles. And that was the legal basis for considering commodity exchanges as a modern form of commodity trading. However, it was not until Decree 158/2006/ND-CP issued on December 28, 2006 that the buying and selling of goods through commodity exchanges was uniformly managed by the Government. The Ministry of Trade was assigned to be responsible for managing the activities of the exchanges. Since then, commodity exchanges have had the legal status of enterprises operating in the field of commodity trading. On February 10, 2009, the Ministry of Industry and Trade issued Circular 03/2009/TT-BCT guiding the dossier, procedures, and procedures for granting establishment licenses and regulating the reporting regime of commodity exchanges. Thus, businesses have waited for 4 years for a complete legal framework to come into operation. However, the management mechanism of domestic commodity exchanges has not yet met standards, in addition, the legal basis is still unclear and uncertain in terms of regulations and operations, creating instability not only in terms of structure but also in terms of transactions during operation. The emergence of disputes is inevitable, and how to resolve those disputes has not yet been unified, leading to inadequacies in the operating model of commodity exchanges.

2.5.2 The commercial banking system has not yet played its role well.


To develop non-financial commodity derivatives trading, the commercial banking system plays a very important role. During the research period, commercial banks have not yet played their role well. Banks have not yet combined with commodity exchanges to build suitable derivative products to supply to the market, and have not yet combined banking products with non-financial commodity derivatives trading products. Banks have not yet sponsored well the parties participating in derivatives trading. The role of commercial banks has not yet been clearly demonstrated.


in connecting domestic investors, domestic commodity suppliers with foreign commodity exchanges. Providing information and consulting potential customers on non-financial commodity derivative products of banks is also limited.

2.5.3 Products traded on the market are not diverse


The products traded on commodity exchanges in Vietnam are mainly focused on spot transactions, while derivative trading products are still very rudimentary and not diversified. The lack of diversity is reflected in both the underlying assets and the applied derivative instruments. Only a few commodities are used as underlying assets: rubber, coffee, cashew nuts, steel. Many strong commodities in Vietnam have not been put into trading on commodity exchanges. The applied derivative instruments are limited to futures and futures products, but the terms are not diverse, and option products have not been applied. It is the lack of diversity of products that makes the turnover of non-financial commodity derivatives transactions very limited, thus not highlighting the advantages of this transaction compared to traditional transactions and not attracting many participants. This is one of the main reasons why non-financial commodity derivatives transactions in Vietnam have not developed.

2.5.4 Limited management role


Non-financial commodity derivatives transactions involve many management agencies: non-financial commodities are under the management of the Ministry of Industry and Trade, derivative transactions are under the management of the Ministry of Finance and payment activities are under the management of the State Bank. According to the analysis of the situation of non-financial commodity derivatives transactions in Vietnam in recent times, it shows that the management role of the competent agencies has not fully promoted its role and it is very difficult to coordinate the management of non-financial commodity derivatives transactions. This is a point that needs to be carefully considered to ensure the best environment for the development of non-financial commodity derivatives transactions.


2.5.5 Exchange support services are still underdeveloped


For the development of commodity derivatives trading, the main services that need to be developed are providing accurate information about commodities, forecasting commodity output, training knowledge about derivatives for each potential market participant: farmers, traders, brokers, payment banks, transaction management departments, market management, quality control departments, corporate tax departments, and personal tax departments. The work of promoting derivative products on the floor, research work, learning from experiences of foreign commodity exchanges, sending people to work in the field, learning from practical experiences of foreign commodity exchanges also need to be developed accordingly. Because these services have not been developed, when the floors are established and operating, isolation and inefficiency immediately manifest. Commodity exchanges themselves cannot undertake all tasks at the same time to develop a market of very complex instruments. The lack of or poorly developed support services is one of the reasons for the current limitations of commodity derivatives trading. Looking more deeply into the experience of many successful countries in non-financial commodity derivatives trading, these services have developed very strongly, ensuring systematicity and sustainability.

2.5.6 Underdeveloped technology infrastructure


One of the reasons for the limitations in commodity derivatives trading is the underdeveloped technological infrastructure. Solving this problem will create a good foundation for the development of this transaction in the future. The main issues that need to be considered when developing technological infrastructure include trading software for the floor, customer information management software, software connecting foreign commodity exchanges in the case of direct trading on foreign commodity exchanges or in the case of connecting domestic commodity exchanges and foreign commodity exchanges. It can be seen that technology in commodity derivatives trading is one of the most important conditions to ensure the development of the market. For a long time, Vietnamese technology has depended on foreign inventions, which has created a

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