Abstract: The article examines the legal system governing forward contracts in commodity trading through commodity exchanges in Viet Nam. It focuses on clarifying the concept, legal characteristics, and the mechanism for the conclusion and performance of such contracts, while also analyzing the current legal framework, identifying its shortcomings and limitations in both legal provisions and practical implementation. On that basis, the paper proposes solutions to improve the legal framework, aiming to ensure transparency, efficiency, and legal safety for the parties involved in transactions on the organized commodity market.
Keywords: Forward contract, forward contract law, commodity exchange, forward trading, futures trading.
In the context of globalization and the robust development of the global commodity market, the establishment and operation of commodity exchanges play an important role in price regulation, risk prevention, and the promotion of trade. In Viet Nam, the model of commodity trading through commodity exchanges has been gradually developing, especially with the emergence of derivative contracts such as forward contracts. These are modern trading instruments that enable enterprises and investors to hedge against price risks while creating opportunities for profit from market fluctuations.
However, the legal framework governing transactions through commodity exchanges in general, and forward contracts in particular, still contains many gaps and shortcomings. The current legal provisions remain fragmented, inconsistent, and fail to keep pace with the actual practices of transactions in organized commodity markets. This situation creates difficulties in contract conclusion, dispute resolution, and the protection of the legitimate rights and interests of market participants.
Therefore, a systematic, comprehensive, and in-depth study on the “Law on Forward Contracts in the Purchase and Sale of Goods through the Commodity Exchange” is imperative. The research results will not only clarify the theoretical basis and the practical application of the law but also serve as a foundation for proposing improvements to Viet Nam’s legal system, in line with international practices and the requirements of global economic integration.
A forward contract is an agreement between parties whereby the seller undertakes to deliver, and the buyer undertakes to receive, a specified commodity at a predetermined time in the future, at a price agreed upon at the time of contract conclusion. A forward contract does not involve the physical presence of the commodity at the time of conclusion but is directed toward the delivery and receipt of the commodity at a future date, thereby protecting the parties’ interests against market fluctuations. At the time the forward contract is concluded, the goods constituting its subject matter do not yet exist; the performance of the contract is set for a future point in time with the purpose of stabilizing prices and mitigating market risks for the parties involved.
In addition to the definition provided in the Law on Commerce 2005, many international scholars and specialized institutions have also offered more specific definitions of forward contracts. Professor John C. Hull defines it as “an agreement between two parties to buy or sell an asset at a specified future time, at a price agreed upon today.” From a legal perspective, Black’s Law Dictionary defines a forward contract as “a privately negotiated agreement to buy or sell a commodity or financial instrument at a specified future date for a price agreed upon in advance.” These definitions show that a forward contract essentially constitutes a bilateral derivative instrument that is not performed upon conclusion but aims to protect the parties’ interests from price volatility. However, the shared characteristic of deferred performance often leads to confusion between forward contracts and futures contracts - another form of trading instrument also directed toward future performance but standardized in terms of content, quantity, and maturity, and executed centrally through an exchange with the participation of a clearing organization. In contrast, a forward contract is, by its nature, a bilateral, highly customized transaction that is not listed and typically lacks an intermediary clearing entity. The absence of a clear distinction between these two types of contracts under current Vietnamese law may result in confusion regarding their formation mechanisms, participants, and modes of performance.
Forward contracts in commodity trading through commodity exchanges possess the following distinctive characteristics:
First, forward contracts are standardized under the rules of the commodity exchange. Essential terms of a forward contract - such as the name of the commodity, quality specifications, trading volume, delivery date, and place of delivery - are strictly standardized pursuant to the operational regulations of the exchange. The key distinction between a forward contract and an ordinary sales contract or an over-the-counter (OTC) futures contract lies in the fact that the parties do not have absolute freedom to determine the fundamental terms of the contract. When entering into a forward contract, the parties may only choose among the conditions pre-established by the commodity exchange, ensuring transparency, efficiency, and the minimization of potential disputes arising from disagreement over contractual intent.
Second, the time of delivery and payment is determined for a future date, while the price is fixed at the time of contract conclusion. The defining feature of a forward contract is that the parties agree upon the commodity price at the time of conclusion, regardless of subsequent market fluctuations. This arrangement is intended to protect the interests of the parties against unpredictable market volatility. The fixing of the price in advance not only serves as a core legal element but also distinguishes a forward contract from a spot contract, under which the price is determined close to the delivery time.
Third, forward contracts possess high liquidity through the clearing mechanism operated by the commodity exchange. A prominent characteristic of forward contracts traded on commodity exchanges is their high degree of liquidity. Most forward contracts do not result in physical delivery of goods; instead, they are settled prior to maturity through clearing operations, whereby offsetting transactions are executed to close the initial position. This mechanism allows participants to trade continuously, providing flexibility in risk management and business opportunities while minimizing actual delivery obligations. In practice, only a small proportion (approximately 2 to 3 percent) of forward contracts are settled through physical delivery upon contract maturity.
In summary, forward contracts in commodity trading through commodity exchanges not only serve as an effective legal mechanism to safeguard economic interests against market risks but also reflect the advanced development level of the modern commodity market, characterized by high liquidity and a high degree of standardization.
Forward contracts in commodity trading through commodity exchanges constitute a specific form of commercial contract that profoundly reflects the commodity–monetary nature of sale and purchase relations in a modern market economy. Unlike ordinary contracts for the sale of goods, a forward contract is highly standardized and performed within a specialized institutional environment in which elements such as participating entities, contractual conditions, payment methods, time, and place of delivery are all governed and supervised under the rules established by the commodity exchange.
Given their distinctive nature, forward contracts concluded through commodity exchanges must be governed by a specialized and independent system of legal norms, separate from general provisions on the sale and purchase of goods. This legal system not only regulates the substantive elements of such contracts but also establishes rules concerning market supervision mechanisms, information disclosure obligations, risk prevention measures, and dispute resolution procedures, thereby ensuring a comprehensive and rigorous framework for market control.
Accordingly, the law governing forward contracts in commodity trading through commodity exchanges holds an important position within the legal system governing the sale and purchase of goods in particular and commercial law in general. This body of law contributes to enhancing transparency, safety, and efficiency in commercial activities while providing a solid legal foundation for the development of price risk–hedging instruments and for attracting investment in the derivatives commodity market - a sector that is increasingly expanding in both Viet Nam and globally.
Từ những yêu cầu thực tiễn nêu trên, có thể thấy rằng việc nghiên cứu, đánh giá và làm rõ các quy định pháp luật điều chỉnh hợp đồng kỳ hạn trong hoạt động mua bán hàng hóa qua SGDHH là yêu cầu tất yếu, đặt nền móng cho việc hoàn thiện thể chế pháp luật về thương mại trong bối cảnh hội nhập kinh tế toàn cầu và phát triển thị trường hàng hóa hiện đại.
From the above practical considerations, it can be observed that the study, evaluation, and clarification of the legal provisions regulating forward contracts in commodity trading through commodity exchanges are essential tasks. They lay the groundwork for improving the commercial legal framework amid global economic integration and the advancement of modern commodity markets.
In essence, the law on forward contracts in commodity trading through commodity exchanges can be understood as a system of behavioral rules promulgated or recognized by the State to regulate social relations arising in the process of concluding, performing, and settling forward contracts established through commodity exchanges.
The content of the law on forward contracts in commodity trading through commodity exchanges is concretized through specific groups of legal norms, including: (1) orms governing the participants in forward contracts (trading members, investment clients, brokerage institutions); (2) norms regulating the subject matter of forward contracts (types of commodities traded, grades, contract units, etc.); (3) norms governing the content of forward contracts (price, maturity, delivery location, tick size, position limits, payment methods, contract size, etc.); (4) norms regulating related issues such as margin requirements, clearing, breach handling, and supervision mechanisms exercised by State authorities and the commodity exchange itself.
Only trading members of commodity exchanges are permitted to engage in commodity trading through the exchange, under two forms: proprietary trading or trading on behalf of clients under an authorization arrangement. To become a trading member, a merchant must satisfy stringent requirements concerning legal status (being a legally established enterprise), financial capacity (having a charter capital of at least VND 75 billion), and managerial competence. Enterprises that fail to meet these conditions are not permitted to be parties to forward contracts, even if they are the actual entities wishing to buy or sell commodities. Legally, a forward contract is established between trading members of the commodity exchange, not directly between end clients. This gives rise to certain complex legal implications:
First, if a trading member simultaneously engages in proprietary trading and acts under client authorization for the opposite position, a situation may arise where the same member is both the buyer and the seller in one contract—contravening a fundamental principle of civil law.
Second, if a trading member acts under authorization for two clients with opposing positions and internally matches their orders, the contract would be formed in the name of a single legal entity, which conflicts with Article 388 of the Civil Code 2015 concerning the legal capacity of contracting parties.
Current legal provisions also fail to clearly distinguish between the concepts of “broker members” and “trading members,” whereas in international practice (for instance, in the United States, the United Kingdom, and the Republic of Korea), this distinction is explicit. Broker members merely facilitate transactions, while trading members engage solely in proprietary trading. The lack of clarity in this respect poses potential risks of violating the principle of representation, leading to conflicts of interest or undermining the legal validity of contracts.
Unlike ordinary commodity trading, the objects of forward contracts (or futures contracts, under the laws of other countries) are commodities. According to Vietnamese law, commodities traded on commodity exchanges are determined by the Ministry of Industry and Trade for each period, whereas under the laws of other countries, commodities traded on commodity exchanges are determined by each exchange. Regardless of which authority determines them, commodities as objects of forward or futures contracts must satisfy conditions consistent with the characteristics of futures trading, namely: (i) capable of being stored or preserved for a relatively long period; (ii) easy to classify by quality and grade; (iii) capable of being traded in large volumes; (iv) prices are not fixed and fluctuate relatively complexly; (v) there are multiple public participants as buyers and sellers.
First, when the parties enter into forward contracts aiming for delivery and receipt on a commodity exchange, the objects of the contract are commodities. In contrast, in ordinary commodity sales contracts, the objects are very diverse, mainly consisting of existing goods intended for immediate delivery. The objects of forward contracts are limited, primarily falling into three categories: agricultural products, energy, and metals. These commodities experience significant price volatility and are governed by supply and demand rules beyond the control of any single entity. Theoretically, there is no restriction on the type of commodities that may be traded on futures markets. However, in practice, commodities with high price volatility and those easily affected by market changes generate the greatest demand for futures trading.
In Viet Nam, pursuant to Article 63 of the Law on Commerce 2005 and Article 32 of Decree 158/2006/ND-CP (as amended by Decree 51/2018/ND-CP), the types of commodities traded on commodity exchanges are regulated as follows: (i) For commodities falling under the category of conditional or restricted business, the exchange must register with the competent authority for approval to list the commodities for trading on the exchange; (ii) For commodities not included in the prohibited, restricted, or conditional business categories, according to Decision 4361/QD-BCT dated 18 August 2010 of the Ministry of Industry and Trade on the publication of the list of commodities permitted for trading on commodity exchanges, the commodities eligible as objects of forward contracts on Vietnamese commodity exchanges include only coffee, rubber, and steel. These commodities represent Viet Nam’s strengths and are also goods with high volatility, significantly influenced by market changes.
Through a study of the laws of several countries worldwide, the regulation of commodities as objects of forward contracts is quite diverse. According to the Futures Trading Act of the Province of Ontario, Canada (enacted in 1990, last amended in 2023):
Commodities are understood to include agricultural products, forestry products, seafood, minerals, metals, hydrocarbon fuels, currencies, or precious stones, as well as any type of commodity, item, service, right, or interest, whether in their original form or processed, selected as a commodity under the provisions of this Act. This regulation allows the Province of Ontario, Canada, to have a broader scope of objects for futures contracts compared to Vietnamese law. It extends beyond agricultural products, energy, and metals to include a wide range of other commodities, whether in raw or processed forms, or even services. This difference is understandable because futures trading in Ontario, Canada, has a long-standing and professional character, whereas in Viet Nam, such activities are still in the early stages of development. The limited knowledge, experience, and infrastructure necessitate that Vietnamese law restricts commodities to key strategic items first, ensuring more stable steps for the nascent futures market.
Commodity trading through the commodity exchange constitutes futures trading; therefore, the objects of forward contracts should be commodities that will exist in the future (e.g., trading young rice or coffee before harvest). However, the author does not entirely agree with this view. While most commodities to be produced in the future are indeed the objects of forward contracts, this is not always the case. Some forward contracts still trade commodities that already exist at the time of contract conclusion. In essence, a forward contract is a commitment to buy or sell at a price determined at the time of contract formation, with delivery and receipt scheduled for a future date. This means that delivery occurs at a specified future time and is not “immediate” as in ordinary commodity sales contracts, and the commodity does not have to be yet in existence. The primary purpose of forward contracts is to hedge against price risk, which is the fundamental significance of this contract type.
Second, when the parties to a forward contract settle the contract through an opposite order, the object of the contract is the original contract (the underlying commodity contract) concluded previously. This is a special type of contract object that only appears in high-end commodity markets. Participants in commodity trading on the commodity exchange do not only aim to trade the actual commodities but also seek speculative gains. Therefore, the forward contracts themselves (the underlying contracts) become objects for resale in transactions on the exchange. Normally, once a contract is concluded, the contractual obligations of the parties arise, and it is difficult for a party to transfer its obligations to another without the consent of the counterparty. However, in the case of forward contracts, due to their flexible mechanism, the commodity exchange allows buyers and sellers to place opposite orders to sell the established forward contracts, thereby offsetting obligations. In this process, the buyer in the original forward contract (the initial forward sale and purchase) becomes the seller in the second forward contract, and the new buyer assumes the position of the original buyer to perform obligations to the original seller, and vice versa. In this way, the initial forward contract can be bought and sold multiple times before its expiration - until the contract is due for delivery. These resale transactions of forward contracts are referred to as derivative transactions based on the original contract. In this context, the objects of the derivative contracts are no longer the commodities themselves, but the forward contracts. Consequently, forward contracts themselves become the objects traded on the commodity exchange, and in fact, this is the most common object in these transactions, as the primary purpose of market participants in futures trading is speculation on commodity price fluctuations.
First, the delivery month under the contract: The Law on Commerce 2005 and its guiding documents do not provide specific regulations on the delivery month under a contract. Typically, the delivery month is specified for certain months within the year. When customers establish a commodity trading relationship through the commodity exchange via an exchange member, they cannot request delivery and payment according to their own discretion. In the case of commodities that require harvesting, such as agricultural products, the commodity exchange usually sets delivery months corresponding to the harvest periods. For example, at the London International Financial Futures and Options Exchange (LIFFE), the delivery months for coffee are January, March, May, July, September, and November; at the Chilongpour Commodity Exchange, Malaysia, the delivery months for crude oil are December, January, February, March, April, May, July, September, and November. Such regulations make commodity trading via the commodity exchange completely different from ordinary commodity trading and futures trading outside the exchange, where buyers and sellers can agree to delivery and payment at any time suitable for both parties.
It is reasonable that Vietnamese law does not provide specific regulations on the delivery month for forward contracts. Commodity exchanges also establish specific delivery months for each type of tradable commodity. Leaving this provision open allows domestic exchanges to proactively design forward contracts suitable for the diverse needs of customers and the characteristics of the products, especially aligning with the actual conditions of domestic commodity production. This provision also conforms with international practice, as most countries worldwide allow exchanges to choose the delivery months. The delivery month serves as a benchmark for the parties to determine the contract’s expiration, enabling proper planning for harvesting or production to ensure timely delivery; for speculators, the delivery month provides a basis for developing appropriate speculative strategies.
Furthermore, once the delivery month (contract expiration month) has been determined, the commodity exchange decides on a last trading day. “The last trading day of the contract is the day designated by the commodity exchange, after which the contract is no longer permitted to be traded.” This day may fall on any day within the month, but the most commonly used days are Friday, Tuesday of the working month, or the working day immediately preceding the last working day of the month. The first delivery day must also be determined. Most contracts allow delivery on any day within the month after a certain date. Typically, the most appropriate first delivery day is the first working day of the month; however, for certain cash-settled contracts, settlement occurs on the last trading day or the day following the last trading day.
Although Vietnamese law does not provide specific regulations on the delivery month for forward contracts, which is considered consistent with international practice, the author identifies certain limitations as follows: (1) Lack of a unified legal basis to ensure market transparency and stability. Leaving the delivery month open for the exchanges to determine is a flexible solution; however, this “openness” may lead to inconsistencies between exchanges or between different commodities; (2) Difficulties in standardizing forward contracts across the entire market, causing confusion for new or foreign investors when exploring and participating; (3) Absence of a minimum supervisory and standardization mechanism by the State, which may reduce transparency and centralized management of the entire forward contract market. Therefore, it is necessary to consider issuing a guiding legal framework or a recommended list of standard delivery months to ensure both flexibility for the commodity exchanges and a unified foundation for state management.
Second, price in the contract: When concluding a contract, one of the key concerns of the parties is the price specified in the contract. Price serves as the basis for determining the potential profits or losses of the parties, which is particularly crucial in business. Moreover, correctly capturing and utilizing price opportunities reflects the strategy and capability of hedgers and speculators when entering into contracts. In the case of a regular commodity sale contract, the price is determined as the spot price at the time of contract conclusion, in other words, the prevailing market price or the immediate settlement price. However, for forward contracts on a commodity exchange, the price is a forward price. This means that the price is neither the market price at the time of contract conclusion nor a future market price, but rather the price agreed upon at the time of contract conclusion that the parties are willing to accept (the expected price). This price is calculated based on the spot price and other parameters estimating the potential increase or decrease in the commodity price until the actual delivery occurs. When entering into a forward contract, the seller anticipates that the product price will decrease in the future, while the buyer expects the price to rise. If the commodity price at the determined future date (delivery date) is lower than the price agreed in the forward contract, the seller gains a profit. Conversely, if the market price at the future date is higher than the contracted price, the profit belongs to the buyer.
The pricing unit and price tick are also specified in the contract. The pricing unit is simply the unit in which the price is expressed. For example, Robusta coffee is priced in VND/ton and USD/ton at BCCE; at VNX, all commodities including coffee, rubber, and steel are priced in VND. The pricing unit does not have to be rigid but must be clear and commonly understood. In most cases, the pricing unit from the spot market is adopted for use.
Closely related to the pricing unit is the price tick. The price tick is generally the smallest quotation unit, and minimum price fluctuations cannot exceed this tick. For example, WTI Crude Oil futures contracts (NYMEX). On NYMEX, a WTI Crude Oil futures contract has a contract size of 1,000 barrels. The minimum price fluctuation (tick size) is set at USD 0.01 per barrel. If the current price is USD 50.00 per barrel, the next possible adjustment can only be USD 50.01 or USD 49.99 — exactly one tick. This tick is specifically defined in the contract and represents the minimum allowed price fluctuation. Typically, no transactions above or below the limit price are permitted. Therefore, prices cannot rise excessively or fall too low. Some contracts have limit prices only during the opening minutes, while others have limits in the middle or at the end of the trading session. If the price remains at the limit for an extended period, the commodity exchange may decide to suspend trading. This mechanism helps manage and control prices, preventing excessive volatility that could lead to crises or bankruptcies. Despite these advantages, the current Vietnamese legal framework on pricing in forward contracts still has several limitations:
First, there is a lack of specific and consistent regulations on the mechanism for establishing forward prices. Current Vietnamese law, including the Law on Commerce 2005 and its guiding documents, does not provide detailed provisions on the method of price formation in forward contracts. In forward contracts, the price is a “forward price” - established at the time of contract conclusion but executed at a future date.
Currently, the determination of this price entirely depends on internal agreements between the trading members and the commodity exchange, without a standardized pricing model, such as the calculation based on spot price plus storage costs and capital costs or methods based on a reference market index. This leads to a lack of common standards, easily resulting in unreasonable price differences between commodity exchanges or between market prices and contract prices, increasing legal risks and disputes between parties, especially in highly volatile markets, and weakening the development potential of derivative products linked to forward prices.
Second, the current legal regulations have not codified the concept of “expected price” and the price adjustment mechanism. The price in a forward contract is an “expected price” accepted at the time of conclusion, but the current law does not define what an “expected price” is. There is no provision on the mechanism to adjust prices in case of abnormal market fluctuations between contract conclusion and execution. This causes difficulties for judicial authorities in disputes involving price reassessment due to force majeure and lacks a basis to protect individual investors, especially the weaker party in speculative transactions.
Third, price tick and price limits have not been stipulated in legal documents. Currently, technical factors such as tick size, quote unit, and price limit are determined by the commodity exchanges themselves in standard contracts and have not been codified or specifically guided in any legal document. This results in a lack of uniformity between traded products and difficulties in comparing different types of contracts. Investors find it difficult to monitor and are easily affected by price manipulation through abnormal small ticks. For example, while NYMEX sets the tick size for WTI crude oil at USD 0.01 per barrel, in Viet Nam there is no legal basis requiring commodity exchanges to follow any limit, reducing transparency and control over price fluctuations.
Third, contract size: Contract size refers to the specific number of units of a commodity in one contract. This quantity varies among commodities and may be expressed in barrels, tons, kilograms, etc., depending on the nature of each commodity. Determining the contract size is a critical issue. If the size is too small, hedgers and speculators will incur higher transaction costs because each contract carries a certain cost. Conversely, if the size is too large, small speculators and hedgers cannot participate in the market, leading to the risk of insufficient matched contracts.
Contract size is also an open term under Vietnamese law. Specifically, the Law on Commerce 2005, Decree 158/2006/ND-CP, Decree 51/2018/ND-CP effective from June 1, 2018, and guiding documents do not regulate this issue. The size of each contract suitable for each commodity is determined by the commodity exchanges according to their operational conditions. This is fully consistent with international practice and gives exchanges autonomy in managing commodity trading. Worldwide, contract sizes are highly diverse, reflecting the variety of commodities traded on exchanges. For example, futures contract sizes for corn, oats, soybeans, and wheat on CBOT (CME) are 5,000 bushels, while on MCE (Central America Commodity Exchange) they are 1,000 bushels; futures contracts for live cattle, hogs, and pork bellies on CME are 40,000 pounds, while on MCE only 20,000 pounds; crude oil futures on NYMEX are 1,000 barrels; on COMEX, gold contracts are 100 troy ounces, silver 5,000 troy ounces, copper 25,000 pounds; soybean futures on CME are 5,000 bushels (~136 tons); crude palm oil (FCPO) and crude palm kernel oil (FPKO) futures on the Malaysian commodity exchange are 25 tons.
Currently, the number of commodities and the size of forward contracts at Vietnamese commodity exchanges (particularly MXV) remain quite limited. This stems from the fact that the market is still in its early stages and the participation capacity of investors is relatively weak compared to international standards. For example, previously (e.g., at BCCE and VNX): Robusta coffee forward contracts had a size of 10 tons/lot; Grade 1 Robusta coffee, Arabica coffee, and RSS3 rubber contracts: 1 ton/lot; hot-rolled coil steel: 5 tons/lot. However, according to MXV’s updated 2024 report, the exchange managed nearly 30 business members nationwide and interconnected trading with 46 products from major exchanges around the world. It can be seen that forward contracts offered by Vietnamese commodity exchanges are relatively small in size compared to global standards. This reflects both the novelty of this trading activity in Viet Nam and the limited capacity of market participants.
Fourth, basic grading of commodities. One of the fundamental characteristics of forward contracts is the standardization of basic commodity grades. Each commodity exchange is only permitted to trade specific commodities as registered. These commodities have many different grades, each regulating a different price level according to quality in the spot market. Forward contracts must specify the acceptable grade for delivery. This is a binding provision in the contract, requiring the parties to comply. While in ordinary commodity sales contracts and OTC futures contracts, commodities can be traded with grades and qualities agreed upon by the parties, which may change if a new agreement is reached, in forward contracts the commodity grade is pre-announced by the commodity exchange through its public disclosure mechanism. Therefore, there is effectively no negotiation on the grade; the parties must comply with the strict standards of grade and quality set for traded commodities. If a commodity does not meet the standard, the contract cannot be concluded. At the same time, the exchange ensures product quality through this mechanism. This creates a clear distinction and demonstrates the superiority of forward contracts compared to other types of commodity sales contracts. Standardization of basic commodity grades both saves the parties’ time in negotiating the contract subject, ensures higher and more accurate commodity quality, and guarantees proper fulfillment of obligations regarding the agreed commodity type.
To clarify the types of commodities permitted for trading in forward contracts through commodity exchanges, the Ministry of Industry and Trade issued Decision 4361/QĐ-BCT dated 18 August 2010 on the publication of the List of Commodities Permitted for Trading through Commodity Exchanges. Accordingly, the grades of commodities traded in forward contracts on Vietnamese commodity exchanges are defined as follows.
Currently, Viet Nam’s law does not provide a unified and comprehensive legal framework regarding standards, grading, or classification of commodities applicable to all types of forward-traded commodities. Regulations on commodity grades are only indirectly mentioned through the List of Commodities Permitted for Trading on Commodity Exchanges (Decision 4361/QĐ-BCT dated 18 August 2010), without a national standard system or specific technical guidelines attached.
Commodity exchanges are therefore required to develop or refer to international standards for each type of commodity, which creates the risk of inconsistency, particularly for commodities of domestic origin or those less common internationally.
This may easily lead to conflicts in delivery practice, especially when disputes arise regarding grades without clear legal grounds or an independent standardization assessment body designated by law.
Fifth, regarding the place and time of performance of forward contracts: The delivery and receipt of commodities under a forward contract are carried out at a unified location, namely the commodity delivery center of the exchange, on certain dates within the month as announced by the exchange. In Viet Nam’s law, the Law on Commerce 2005 is the first legal document to provide regulations on forward contracts. Article 64 of the Law on Commerce 2005 stipulates: “A forward contract is an agreement under which the seller undertakes to deliver and the buyer undertakes to receive commodities at a point in the future according to the contract.” Accordingly, the law does not provide clear and specific rules regarding the place and time of performance of forward contracts. The Law on Commerce 2005 only defines a forward contract in general terms, without detailing the basic contractual terms, including the place of delivery and the time for performance of delivery and receipt obligations. Currently, the establishment of the place and time for delivery and receipt is primarily announced by the commodity exchanges themselves, without a minimum legal framework set by the State management authorities.
From the above analysis, it can be observed that this definition does not clearly reflect the nature of a forward contract as a type of future sales contract executed on an organized futures market (commodity exchange). The practice of forward trading and the law in some other countries indicate that the concept of a forward contract can be approached more comprehensively and accurately: a forward contract is an agreement for the sale and purchase of future commodities executed at a commodity exchange, under which the seller undertakes to deliver and the buyer undertakes to receive the commodities at a future date according to the forward price and contract terms. This situation reduces transparency and the ability to protect the legal rights of the contracting parties in case of disputes regarding the place or time of delivery. Designating a single delivery location at the exchange’s commodity delivery center may create difficulties for local enterprises located far from this center, increasing logistics and transportation costs. The lack of flexibility in special circumstances, such as natural disasters, epidemics, or supply chain disruptions, means that there is no legal mechanism to adjust the place or time of contract performance in accordance with practical conditions.
In the context of international economic integration and the development of the derivatives market, forward contracts play an important role in risk hedging and stabilizing the commodity market. However, the legal framework regulating this type of contract in Viet Nam, although established on the basis of the Law on Commerce 2005 and its guiding documents, still contains many shortcomings regarding the concept, parties, objects, content, and enforcement mechanisms. Drawing on the laws of some developed countries, particularly the Futures Trading Act of the Province of Ontario, Canada, this article proposes several solutions to improve Viet Nam’s legal framework as follows:
First, it is necessary to amend and supplement the concept of forward contracts. It should be clarified that a forward contract is a standardized agreement for the future purchase and sale of commodities conducted through commodity exchanges, characterized by a deferred delivery price and a future execution date. The current definition under Article 64 of the Law on Commerce 2005 is overly simplistic and does not fully reflect the legal nature and operational mechanisms of such contracts.
Second, the participants in the market should be clearly distinguished. The law needs to differentiate between “broker members” and “trading members,” similar to the legal frameworks in Canada or the United States. At the same time, it is necessary to restrict activities combining proprietary trading and agency trading within the same contract to avoid conflicts of interest and ensure the principle of representation. Transparent procedures for concluding contracts with end customers should be established, clearly stipulating the rights and obligations of customers in relation to exchange members to ensure legal safety and protect weaker parties.
Third, expand and diversify the commodities traded. It is necessary to consider amending Decision 4361/QĐ-BCT to broaden the list of tradable commodities, not limited to coffee, rubber, and steel, but also including processed commodities, services, or intangible assets, in line with the broad concept in the Futures Trading Act of the Province of Ontario, Canada, encompassing property rights, renewable energy, carbon credits, services, etc. This aligns with international practices and facilitates market development.
TFourth, supplement specific provisions on the location and timing of contract execution. The law should clearly stipulate the criteria for selecting delivery locations, rather than leaving full discretion to the commodity exchanges. Exceptions allowing changes in location or timing should be provided, with a mechanism for consultation or approval from the competent state authority in cases of force majeure. The development of satellite delivery centers should be permitted, instead of concentrating deliveries at a single center, to reduce logistics costs and facilitate access for enterprises in remote areas.
Fifth, recognize and codify the mechanism for contract settlement through offsetting trades. The law should explicitly acknowledge this mechanism as a special method of transferring obligations, while specifying the conditions, procedures, and legal consequences to ensure transparency, legal safety, and risk mitigation.
Sixth, supplement provisions on contract size, quote units, and tick size: These technical elements need to be standardized and specifically guided to facilitate access for both institutional and individual investors. The law should define “expected price” and the procedure for establishing forward prices, including reference methods such as spot price + capital cost + storage fee, and a transparent, standardized pricing model applied across all commodity exchanges. Legal guidance should be issued on tick size, price fluctuation limits, and quote units to ensure transparency and prevent price manipulation. A mechanism for contract price adjustment in cases of extreme volatility or market crises should be established to protect investors, especially the weaker parties.
Seventh, standardize contract size regulations. A legal framework should be developed to guide the minimum and maximum contract size for each commodity category (agricultural products, metals, energy, financial products, etc.), ensuring reasonable transaction costs while expanding opportunities for small investors. Commodity exchanges should be encouraged to design flexible contracts suited to the limited financial capacity of domestic investors and to support risk-hedging activities for small and medium enterprises.
Eighth, enhance risk control and supervisory enforcement. An independent monitoring mechanism should be established for trading members, particularly in entrusted transactions, to ensure compliance with principles of transparency, openness, and prevention of price manipulation.
Forward contracts are an important instrument in modern commodity trading, contributing to effective risk hedging and market stability. However, to fully realize this role, the legal framework needs further improvement to ensure transparency, consistency, and alignment with market practice. Reviewing, adjusting, and standardizing related provisions will not only enhance enforceability but also lay the foundation for the sustainable development of Vietnam’s derivatives market. In the coming period, the focus should be on building a stable, modern legal corridor that aligns with international practices, attracts investors, strengthens risk management capacity, and enhances the regulatory role of commodity exchanges in the digital economy.
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12. Thi Thu Huong Dinh, Nguyen Giac Tri, (2023) “Research to complete the legal framework for development of Vietnam's stock market to meet international trends, Russian Law Journal, Volume XI (2023), Issue 3
13.Robusta coffee trading via futures contract on LIFFE, May 24, 2007, http://www.saga.vn/view.aspx?id=418
14.Nguyen Huu Quynh (1998), Great Dictionary of Market Economy, Institute for Research and Dissemination of Encyclopedic Knowledge, Hanoi, p. 1264.
15. What are futures contract specs?. https://robinhood.com/us/en/learn/articles/what-are-futures-contract-specs/? Accessed at 00:21 on June 20, 2025
16. http://commodity.vietinbank.vn/2012/03/30/ho%CC%A3p-do%CC% 80 ng-tuong-lai-ha%CC%80 ng ho%CC%81a---futures-132, Commodity Futures – Futures.
17. Improved macroeconomic conditions will create investment opportunities in the commodity trading market in 2025. https://thitruongtaichinhtiente.vn/dieu-kien-vi-mo-cai-thien-se-mo-ra-co-hoi-dau-tu-tren-thi-truong-giao-dich-hang-hoa-nam-2025-65447.html, Truy cập 22:00 ngày 15/5/2025
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