Korean Derivatives Market
The daily average derivatives trading volume shrunk by over 30 percent this year when compared to last year. Besides, trading by foreign investors in the local futures market has dropped 15 percent or so, adding to the possibility of persistent market contraction, with discussions going on as to a tax on derivatives.
The Korea Exchange announced on April 23 that the daily average volume totaled 2,686,501 this year, approximately 3/4ths of the 3,535,136 of a year ago. The daily average trading value also dropped 30.61 percent from 51.6291 trillion won (US$49.7 billion) to 35.8233 trillion won (US$34.5 billion) during the same period.
The daily volume was around 7.4 million in 2012 and 3.22 million in 2013. The continuous downward trend signifies that the local derivatives market is very rapidly losing its appeal. The daily average value, likewise, has declined by more than 12 percent last year from 54 trillion won (US$52.0 billion) to 47 trillion won (US$45.3 billion) and to 35 trillion won (US$33.7 billion) in the first quarter of this year.
Another concern is that more and more foreign investors are shunning the derivatives market segments. For example, the volume of trading by foreigners fell 14.9 percent from 94,531 to 80,450 between the first quarters of 2013 and this year in the KOSPI 200 Futures Market. Such a trend is likely to last for a while, since the financial authorities keep a closer eye on the derivatives market for its speculative nature.
Furthermore, Korea slid from first to fifth and then to ninth between 2011 and 2013 in the international rankings of derivatives markets. Meanwhile, China’s Dalian Commodity Exchange (DCE) and Shanghai Futures Exchange (SHFE) climbed from 14th to 11th and from 13th to 12th, respectively. Japan’s JPX Group jumped from 17th to 14th last year as well, with its transaction volume boosted by over 56 percent.
Experts criticize the Korean government for its excessive regulations, including taxation, on the derivatives markets, and this is contrary to the global trend as of late in which the other countries are trying to increase trading volume. “It cannot be denied that derivatives are speculative to some extent, but it is also true that they function as a hedge for the spot market,” one of them explained.
“The domestic market has already reached a limit in terms of trading volume and value alike,” said another industry source, adding, “No upturn will be found, no matter how various products come out, unless the financial authorities change its recognition to ease the regulations.”