Derivatives Market

 

According to the Korea Exchange and the Futures Industry Association of the U.S., the derivatives transaction volume reached 821 million last year, which is 55.3 percent less than the 1.836 billion transactions of the previous year. Besides, the volume has decreased by approximately 80 percent when compared to the 3.928 billion transactions of 2011, when Korea had topped the list based on the transaction volume by bourse. The Korea Exchange slid from the top to the third and ninth places between 2011 and 2013, too.

In the meantime, China and Japan have been quick to snatch the demand Korea has missed out on. They posted a growth rate of 39.5 percent and 39.7 percent each last year to become the two fastest-growing derivatives markets in the world.

China climbed from seventh to sixth and up to third between 2011 and 2013. The country has tried to revitalize its derivatives markets by allowing new products such as coke futures and plate glass futures to be listed, and re-listing the five-year bond futures in 18 years.

Japan, which has remained at the ninth spot for three years in a row, is watching for an opportunity to overtake Korea. In August last year the former announced plans to increase its transaction amount 150 percent by 2015. It is currently mulling over the listing of new items like 20-year bond futures and overseas index futures and a decrease in the asking price gap for the benefit of high-frequency and volume traders, too.

With the situation as it is, the Chinese CSI300 Futures skyrocketed 108.4 percent in trading volume in 2013 alone, and the Nikkei 225 Mini Futures also recorded a growth rate of 79.3 percent. In contrast, the KOSPI 200 Futures trading volume declined by 20 percent during the same period.

The problem is that things remain gloomy at best for the Korean market. The collapse of the market can be mainly attributed to government regulations. The financial authorities raised the multiplier for each KOSPI 200 Index Option contract from 100,000 won (US$96.30) to 500,000 won (US$481.50) back in 2012. This was to drive speculators out of the derivatives market, only to result in an increasing number of individual investors packing up and leaving. 

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