Contractual option agreed privately between two parties is unlikely to be considered as a type of derivative securities under the new Securities Law 2020 and Decree 158/2020. This is because Decree 158/2020 has substantially reduced the scope of underlying assets (tài sản cơ sở) of derivative securities subject to securities regulations. Under the old Securities Law 2006 and Decree 42/2015, a private contractual option could still be considered as a derivative securities under the securities regulations.

Under Article 4.9 of the Securities Law 2019, “derivative securities means a financial instrument in the form of a contract, comprising option contracts, future contracts and forward contracts, which certifies the rights and obligations of the parties with respect to the payment of money and/or transfer of a specified quantity of underlying assets at a specified price during a certain period or on a certain date in the future”. The above definition suggests that derivative securities may include contractual options. However, not all contractual options will be considered as derivative securities. Article 4.10 of the Securities Law 2019 defines underlying assets of derivative securities to include securities, index and other types of assets as specified by the Government”. It can be understood from this definition that only contractual options which have underlying assets being securities, index and “other types of assets” specified by the Government will be classified as derivative securities.

Decree 158/2020 further stipulates two types of derivative securities: (i) exchange-traded derivative securities, and (ii) over-the-counter (OTC) derivative securities under which:

(1)        Exchange-traded derivative securities include futures and listed options with underlying assets being securities, indexes and “other types of assets specified by the Government”; and

(2)        OTC derivative securities include forwards and options with underlying assets are listed securities and indexes.

Decree 158/2020 being a Decree issued by the Government fail to specify what other assets could be used as underlying assets of derivative securities. However, the scope of underlying assets under Decree 158/2020 is substantially smaller than that of Decree 42/2015. Under Decree 42/2015, any assets could qualify as underlying assets of a derivative security.

Accordingly, it is likely that a private option contract between two parties regarding an unlisted security or other assets which are not security will be subject to Decree 158/2020 and Securities Law 2019.

This post is written by Nguyen Thu Giang, and Hoang Thi Thanh Thuy and edited by Nguyen Quang Vu.