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KOSPI200 Futures & Options Market - Current Status & Key Factors for Success The First Seoul International Derivatives Securities Conference August 27 ∼28, 2003 Korea Stock Exchange. KOSPI200 Futures & Options Market Activities.

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slide1

KOSPI200 Futures & Options Market

- Current Status & Key Factors for Success

The First Seoul International Derivatives Securities Conference

August 27∼28, 2003

Korea Stock Exchange

slide2

KOSPI200 Futures & Options

MarketActivities

KOSPI200 FUTURES AND OPTIONS KOSPI200 FUTURES AND OPTIONS KOSPI200 FUTURES AND OPTIONS KOSPI200 FUTURES

KOSPI200 FUTURES AND OPTIONS KOSPI200 FUTURES AND OPTIONS KOSPI200 FUTURES AND OPTIONS KOSPI200 FUTURES

slide3

KOSPI after the Introduction of Derivatives

Launching of KOSPI200 Futures(96.5.3)

Launching of KOSPI200 Options(97.7.7)

Financial Crisis

Launching of Equity Options(02.1.28)

Jan. 1, 1996

July 31, 2003

slide4

Trading Volume of World Derivative Market(2002)

Unit : ten thousand contracts

Source: FIA Monthly Volume

slide5

KOSPI 200 Index Futures

200120022003

  • Avg. Daily Trading Volume : 128,058  175,689(+37%)  262,968(+ 50%)
  • Avg. Daily Open Interests : 51,137  67,125(+31%)  86,366(+ 29%)
slide6

Trading Volume of World Stock Index Futures(June, 2003)

Unit : thousand contracts

Source: FIA Monthly Volume

slide7

KOSPI 200 Index Options

200120022003

  • Avg. Daily Trading Vol.(thous. contracts) : 3,346  7,745(+131%)  10,859(+ 40%)
  • Avg. Daily Open Interests(thous. contracts) : 2,037  3,100 (+52%)  4,006(+ 29%)
slide8

Trading Volume ofWorld Stock Index Options(June, 2003)

Unit : thousand contracts

Source: FIA Monthly Volume

slide15

Trading Weights by Investors & Exercise Prices

(Jan. 2003 ∼ July / Unit : %)

slide16

Circuit Breakers & Side Car

(Unit : Frequency)

slide17

Program Trading

(Unit : millions won, %)

Weight = Trading Value of Program Trading / Trading Value of Stock Market * 100

slide19

Status of Underlying Index atExpiration

( ) : the number of KOSPI200 futures and options expiration days during the period

slide20

Ordering Activity at Futures Market

(Unit : # of cont/order, /day)

slide21

Ordering Activity at Options Market

(Unit : # of cont/order, /day)

slide24

The Number of Active Accounts

(January 1, 2003 ∼ July 31, averaged)

slide25

Key Factors for Success of

KOSPI200 Futures &Options Market

KOSPI200 FUTURES AND OPTIONS KOSPI200 FUTURES AND OPTIONS KOSPI200 FUTURES AND OPTIONS KOSPI200 FUTURES

KOSPI200 FUTURES AND OPTIONS KOSPI200 FUTURES AND OPTIONS KOSPI200 FUTURES AND OPTIONS KOSPI200 FUTURES

slide26

Economic Environment

- Financial crisis

o Investors realized importance of risk and usefulness of

derivative productsas risk management vehicles

o 1997 ~ 1999: KOSPI: 800  280  1,000

- Low interest rate

o To recover from the financial crisis

o A large sum of low-cost capital floating around

  • High volatility in underlying cash market

o Monthly volatility σ: 9%

slide27

Fund Industry in Korea

- Many small funds

o Number of funds : 4,926

o Avg. asset : 20 million U$

- Low credibility

  • Pension fund not developed yet

 Active participation from individual investors

slide28

Securities Companies Practices in Korea

- Trading mechanism

o No specialists, no market makers

- Their role limited to order routing

- Well developed Home Trading Systems

o Fierce competition to attract more customers

 Easy & convenient access for investors

slide29

Rapid Increase of Internet Users

- Nationwide use of high-speed band Internet

o Nationwide Internet network cable installation

o PC Bang, Trading Center(Bang)

- Fast Home Trading System with online real-time information

o Making it easier for individual investors to trade options

o About 52% of orders are through cyber trading

- Spreading websites providing market analysis and research

slide30

Characteristics of the KOSPI 200 Options

- Relatively small contract size

o Enabling individual investors to trade more contracts

with the same amount of money

o $47 (Average option premium : 0.56pt, $1=₩1,200)

-Transaction fee based on trading value

o Reducing cost of trading KOSPI200 options contracts, esp OTM

options compared with other products with transaction fees

based on the number of contracts traded

slide31

Integrated Management ofUnderlying Cash and Derivatives Market

- Philosophy of ‘One Market’

- Timely & Efficient Management

o Circuit breakers

o Side cars

- Facilitation of Investment

o Matching with the rules & regulations of the underlying

market based on ‘One Market’ philosophy

slide32

In-house Trading System

- Sufficient ‘Mock Trading’ period to stabilize the system

o Stress testing over 5 months

o Opportunity to educate and train staffs and investors

- Timely adoption if rules &regulations are revised

- Prompt response to investors’ needs

- Attaining ‘cost efficiency’

o Saving the cost of development & maintenance

slide33

Ensuring Settlement

- Settlement under the responsibility of the KSE

o Central counterparty

- Conservative margin system

slide34

Emphasis on Education & Advertisement

- Publication of pamphlets

- Newspapers articles and TV programs

- Seminars & explanatory meetings

  • On-the-job training
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