Derivative Markets at KRX
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Derivative Markets at KRX Aug 10, 2005 Korea Exchange Topics Major Products Financial Futures Market : 3 Yr KTB Futures Currency Futures Market : USD Futures Options Market : KOSPI 200 Index Technology Risk Management Challenges Ahead Major Products

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Derivative Markets at KRX

Aug 10, 2005

Korea Exchange


Topics l.jpg
Topics

  • Major Products

  • Financial Futures Market : 3 Yr KTB Futures

  • Currency Futures Market : USD Futures

  • Options Market : KOSPI 200 Index

  • Technology

  • Risk Management

  • Challenges Ahead


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Major Products

  • Major products : Most volume comes from stock-related derivatives

    < Daily avg. trading volume >

(unit : contract)

Type

Underlying

2005*

2004

Stock Index Options

KOSPI 200

8,765,732

10,126,736

Stock Index Futures

KOSPI 200

169,585

223,329

Stock Index Futures

KOSDAQ 50

233

828

Interests Rate Futures

3 Yr KTB

42,726

20,409

Currency Futures

USD

10,313

8,361

  • Other products : low liquidity

    < Total Volume >

Futures

2005*

2004

Options

2005*

2004

5 Yr KTB

567

61

KOSDAQ 50

0

1

CD

0

0

Equity

1

1

MSB

1,636

2,621

USD

0

0

Gold

0

969

3 Yr KTB futures

0

0

* 2005 : by June


Financial futures market 3 yr ktb futures l.jpg

60,000

50,000

40,000

30,000

20,000

10,000

0

2000

2001

2002

2003

2004

2005

Financial Futures Market : 3 Yr KTB Futures

  • Daily average volume

(unit :contract)

  • Volume of the 3Yr KTB

    futures has surged in 2005

    due to the fluctuation

    of the interest rate this year

52,369

42,726

(+45%)

29,409

6,305

Source : KRX Review

* 2005 : by June


Financial futures market 3 yr ktb futures5 l.jpg
Financial Futures Market : 3 Yr KTB Futures

  • General trends by investor types

(unit:%)

Institutions

  • Growth to more efficient

    market

    * Institutional & foreign

    investors

    : gradually increasing

    * Individual investors

    : sharply decreasing

25.0%

88.0%

21.1%

85.4%

20.0%

84.0%

12.2%

15.0%

Foreigners

80.0%

10.0%

77.0%

4.8%

76.0%

5.0%

2.0%

Individuals

0.0%

72.0%

2000

2001

2002

2003

2004

2005

Source : KRX Review

* 2005 : by June


Currency futures market usd futures l.jpg
Currency Futures Market : USD Futures

  • Daily average volume

(unit :contract)

10,313

+23.3%

12,000

  • Has broken the record this

    year due to a high volatility

    of the USD spot rate

  • Open interests are increasing

  • for hedging purposes

10,000

8,361

8,000

5,556

6,000

4,000

2,000

0

2000

2001

2002

2003

2004

2005

* 2005 : by June

Source : KRX Review


Currency futures market usd futures7 l.jpg
Currency Futures Market : USD Futures

(unit:%)

  • General trends by investor types

Institutions

81.5%

20.0%

82.0%

  • Has become a more attractive

    market to foreign investors

    * Domestic investors are

    gradually decreasing

Individuals

16.9%

81.0%

15.0%

10.5%

80.0%

10.0%

10.6%

79.0%

Foreigners

5.0%

78.0%

78.3%

1.6%

0.0%

77.0%

2000

2001

2002

2003

2004

2005

* 2005 : by June

Source : KRX Review


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Options Market : KOSPI 200 Index

  • Daily average volume

(unit : contract)

  • Recorded the first ever

    decrease in 2004, and fell

    beneath 10 million contracts

    per day in 2005

  • Still, the most liquid product

    in the world

    (source: FIA data)

12,000,000

11,488,765

8,765,732

10,000,000

8,000,000

6,000,000

4,000,000

2,000,000

-

2000

2001

2002

2003

2004

2005

* 2005 : by June

Source : KRX Review


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Options Market : KOSPI 200 Index

  • Rationale to the decrease in KOSPI 200 options volume.

(unit:%)

60

  • High volatility of the stock

    market caused by the foreign

    currency crisis has been

    recovered to pre-financial

    crisis level

  • With the stock market

    stabilizing, the volume is

    recording a decrease

55.3

50

45.5

40

44.3

30

35.7

30.1

34.2

20

27.8

18

10

24.3

17.4

0

96

97

98

99

00

01

02

03

04

05

* 2005 : by June

Source : KRX Review


Options market kospi 200 index10 l.jpg
Options Market : KOSPI 200 Index

(unit : %)

  • General trends by investor types

70.0

  • The whole market structure

    in terms of market participation

    has evolved to be more

    institutional investor oriented

  • * Individual investors :

  • recorded the lowest market share

  • in 2005

    * Institutional investors & foreign

    investors :

    recorded the highest in 2005

66.0%

60.0

Individuals

50.0

45.1%

40.0

Institutions

34.0%

30.0

20.9%

24.0%

20.0

Foreigners

10.0

9.5%

0.0

2000

2001

2002

2003

2004

2005

* 2005 : by June

Source : KRX Review


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Technology

  • Two systems ⇒ To be integrated to a single platform

  • KRX System (In-house trading system)

    * for the stock related derivatives (KOSPI 200, STAR, Equity)

    • Advantages :

      • Timely adoption if rules & regulations are revised

      • Cost saving

  • KRX Commodity Futures System (Out-sourced)

  • * for the KTB & Currency etc.

    • Advantages :

      • New products easily implemented

      • Used by 20+ exchanges around world


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Technology

  • Environment : rapid increase of internet users

  • Nationwide Internet network cable installation

    • Home, Office, PC trading arcade etc

  • Well developed Home Trading Systems

    • Fierce competition to attract more customers among member firms

  • Easy access to online real-time information

    • Making it easier for individual investors to trade options

    • Spreading websites providing market analysis and research


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Risk Management

  • Conservative margin system to guarantee settlement

    • Initial Minimum Deposit : as an entry barrier

    • Up-front Margining before Transactions

      • Margin checked automatically at a member’s system

        when ordering before transaction

      • Initial margin: 15% / Maintenance margin: 10%

    • Post Margining after transaction

      • Applies to the qualified institutional investors

      • Discount rate for hedging & arbitrage trading


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Challenges Ahead

  • A full-fledged derivative exchange with diverse products

    • New Products planned or reviewed

      * STAR 30 & KRX100 index/ Energy product/10 Yr KTB futures

    • To revitalize the markets with low liquidity

      • * Equity options / 5 Yr KTB futures / USD options

  • An internationalized exchange

    • To attract international investors

      • * Exempted security by SEC to 3Yr KTB futures

      • * No Action relief from CFTCfor KOSPI 200 futures

    • Linkage with other foreign exchange

    • To conform to the global standard


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Challenges Ahead

  • Equity Options (Launch Sep. 26. 2005)

  • Equity Options market

    • Underlying Assets : from seven to thirty Blue-chip stocks

    • Settlement method :from physical delivery to cash settlement

    • Multiplier : × 10

  • Purpose

    • To provide easy access to the market

    • To supply an accurate hedging instrument

      for institutional investors

    • To revitalize the market with low liquidity


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Challenges Ahead

  • STAR 30 Index futures market (Launch Oct. 24. 2005)

  • STAR 30 index futures(financial stability etc)

    • Underlying Assets : STAR 30 index based on stock at KOSDAQ

    • Base Index : 1000 Points vs 100 Points(KOSPI 200 index)

    • Trading Unit : 10,000 KRW vs 500,000KRW(KOSPI 200 index)

    • Offset ratio among index products : 50%

  • Purpose

    • To supply a hedging tool for the KOSDAQ market

    • To revitalize the market replacing KOSDAQ 50 with low

      liquidity



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