Korean Derivatives Market

 

Foreign securities companies such as Macquarie Securities, Citigroup Global Market Securities, and BNP Paribas Securities are packing up to get out of Korea as the local derivatives market collapses. The Korean derivatives market, which was the most vibrant in the world as recently as three years ago, slid to the 11th spot in 2013.

Macquarie Securities is planning to lat go 40 of the 50 employees in the derivatives division, while the other 10 are going to be sent to the derivatives division in Hong Kong. The company used to be the largest equity-linked warrant (ELW) issuer in Korea. However, it closed the ELW business recently. It is just acting as a liquidity provider (LP) these days.

Citigroup Global Market Securities, which used to have over 600 ELWs listed three years ago, has stopped new issues. The Korea Citi Warrant site has been shut down for a while, too. It is an information channel of the company provided for ELW investors.

BNP Paribas is also going through restructuring and business shutdown. Not a few executive members of the derivatives business unit of the company were given a pink slip. BNP Paribas declined to make any comment about its derivatives business.

The rapid shrinkage of the local derivatives market amid the fast growth of its global counterpart is because of excessive regulations, which have caused the amount of trading to decrease by 80 percent in just a couple of years. The multiplier for the KOSPI 200 option was raised from 100,000 won (US$94) to 500,000 won (US$470), and individual investors left. In addition, the minimum deposit was marked up after the scalper scandal in 2011, blocking small-sum investors from getting in from the get go.

“The financial authorities of Hong Kong, Singapore, Thailand and the like are trying to grow their ELW markets by supplying sufficient liquidity, while doing their best to protect the investors,” said an industry insider, adding, “In contrast, the Korean government is focusing on short-term regulations to limit the trading volume and block individual investors.”

The FX margin trading market has also contracted significantly due to the same reason. Trading volume stood at 2.07 million in 2013, showing a 19.9 percent drop from a year earlier, while the trading amount fell 21.4 percent year on year to US$264.2 billion. The minimum deposit was increased in April 2012, which drove out many individual customers.

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