New rules and reforms to support Korean derivatives growth
derivatives market in South Korea will continue to grow steadily thanks to new
reforms and regulations taking place in the market.
South Korea’s derivatives market boasts the world’s greatest trading volume, with
its annual trading reaching US$27 trillion in 2011, according to a study by research
firm Celent titled, ‘Evolution of South Korea’s derivatives market: Factors for
the country’s listed derivatives trading volume, with 3.9 billion transactions annually,
accounts for approximately 20% of the world total, this is in stark contrast to
the nation’s OTC derivatives market, which accounts for just 0.2% of the world
further expand the OTC market, the government plans to introduce a central
counterparty (CCP) clearing house by end of 2012 under the Korean Exchange (KRX).
This will be a major step to take the OTC derivatives market to a level on par
with other markets around the world, cites the report. After the implementation
of the CCP, the market is expected to offer increased security and
country also decided to lift the ban on domestic hedge funds in late December 2011
and the industry expects that – due to the nature of hedge funds, which are
free to invest in items including securities, derivatives, and real estate – greater
liquidity will flow into the derivatives market.
report also says that the introduction of alternative trading systems (ATS) in
the securities market, which will compete with the KRX, offer market
participants new options for minimising risk. Further, KRX is expected to fully
overhaul its trading system by the end of 2013, to make it fully compatible for
important growth factor cited in the report is the relaxation and revision of
certain legislations by the South Korean government to help encourage more
local investment banks to set up in the country. Though risk-based regulations
have been tightened, the government wants to foster a segment of organisations
that can undertake a diverse range of asset management business and operate
across a broader spectrum of activities than existing investment banks. This
measure, along with the lifting of the hedge fund ban, will allow these
entities to engage in various diverse financial services.
Korea's derivatives market may not be able to maintain its steep growth curve,
it should continue its solid growth due to support from substantial financial
market reforms that are taking place," says KyongSun Kong, analyst with
Celent's Asian financial services group and author of the report.
Reporting by Jaya Menon