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KRX Derivatives Market Introduction May 2013, IOMA Conference

KRX Derivatives Market Introduction May 2013, IOMA Conference. Contents. 1. Current Status. 2. KRX Derivatives Market Vision. 3. Development Strategy. Current Status. KOSPI 200 Index Options : world’s No.1 equity product since ’99, Blue (right).

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KRX Derivatives Market Introduction May 2013, IOMA Conference

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  1. KRX Derivatives Market IntroductionMay 2013, IOMA Conference

  2. Contents 1. Current Status 2. KRX Derivatives Market Vision 3. Development Strategy

  3. Current Status KOSPI 200 Index Options : world’s No.1 equity product since ’99, Blue (right) KOSPI 200 Index Futures : world’s No.8 equity futures product, Red (left) Futures Annual ADV KOSPI 200 Futures mkt opened Options Annual ADV Started to exempt Qualified Institutional from Pre-trade Margin KOSPI 200 Options mkt opened Price Limit fr.±5%,±10%, to ±10%,±15% Large-scale market reform KOSPI 200 Options Multiplier quintupled, Requirement of more cash margin Minimum Deposit Lowered 3

  4. Current Status Reasons for Liquidity Launching KOSPI 200 Index Futures, Options in 1996, 97 1. Targeting Both Retail and Institutional with agile responses KRX, with in-house IT infrastructure, targeted both amateur and institutional investors and responded fast to changing environment • One-stop platform for cash, futures, options, clearing, no glitch so far • Provided customized services to Retail and Institutional at the same time • Ex) Risk management features • Retail : Pre-trade Margin, Minimum Deposit, Limiting OI (low threshold) * KOSPI 200 options contract size was comparable to mini products • Qualified Institutional : Post-trade Margin, Limiting OI (high threshold) • Responded fast to market environment and customer needs • Margining : Pre-trade → Post-trade for Qualified Institutional (’05), Gross Risk (’96) → Net Risk (’97), • Settlement Cycle : T+2(’96) → T+1(’97) within only one year • Direct Handling from KRX to retail investors with less brokers’ intervention - Account-level fills were calculated directly by KRX, reducing the work of members, contributed to lower fee, fast & optimized for HTS for retail flow 4

  5. Current Status Reasons for Liquidity Launching KOSPI 200 Index Futures, Options in 1996, 97 2. Year 2001 : Large-scale market reform for modernization Implemented reforms for customer convenience and cost-reduction • Started to cancel out offsetting positions , which led to - Abolishment of margin for offsetting positions and the reporting duty for sending offsetting orders - Reduced transaction cost and complexity of position offsetting - Could prevent erroneous orders regarding offsetting • KRX, with in-house IT infrastructure, targeted both amateur and institutional investors and responded fast to changing environment • facilitated roll-over operations and help to deploy strategies • Ignited order speed competition • Changed order priority rule in call auctions • Changed to only time priority, from brokered order, quantity, time priority • Also sparked order speed competition 5

  6. KRX Derivatives Market Vision Extend Global Alliance Expand Product Offerings Strengthen Clearing Business Big Leap Forward Global Premier KRX Derivatives Market 6

  7. KRW/Liter Refiner E-Trading Development Strategy : Expand Product Offerings Petroleum Products E-Trading Market (2012~) • Theworld’s first competitive market for cash gasoline and diesel in Mar 2012 • Only Petroleum Businesses can participate, barring financial companies • Settlement mode is RTGS (real-time gross) thru KRX account • Currently the market responsible for 4~10% of domestic petroleum trading Buyer Seller Diesel Price Difference btw Refiner, E-Trading • Wholesaler • Petrol Station • Diesel Store • Refiner • Importer • Wholesaler • Contributed to lowering petroleum retail price - Provides anchor price for OTC trading • Enhanced competition, transparency • Petrol stations with negotiating power when OTC trading • KRX plans to introduce Petroleum Derivatives Aug Sep Oct Nov Dec Jan Feb 7

  8. Development Strategy : Expand Product Offerings Spot Gold (2013~14) • KRX plans to list spot gold, considering unorganized gold market in Korea - Exchange trading will reduce costs and irregularities related to gold trading • Spot gold market is expected to help gold and mini-gold futures volumes Carbon Emissions (2015) As one of the leading country in green initiatives, Korea plans to start legally-biding emissions trading system from 2015 As a sole exchange in Korea, KRX plans to open cash and derivatives market for carbon emissions according to government’s plan Volatility Index Futures (2013) Participants demand listed volatility product to avoid using OTC vola contracts Volatility Index product will also serve as an alternative investment vehicle Information regarding market volatility will increase 8

  9. Development Strategy : Enhance Global Alliance Reinforce Global Alliance Alliance with foreign exchanges to offer access to KRX in other time zones - Current : KOSPI 200 Futures(’09, CME), KOSPI 200 Options(’10, Eurex) KRX plans to expand night market offerings - KRW/USD Futures is being considered Listing Foreign Products • KRX plans to offer foreign products of major global exchanges on KRX • Targeting famous foreign index products - In collaboration with partner exchanges - KRX-JPX signed a LOI for listing TOPIX options on KRX 9

  10. Development Strategy : Strengthen Clearing Business 5 of Mar 2013 October 2013 Clearing Service FSC authorizes KRX as CCP The Capital Market Act Revised Third country CCP Recognition/Registration Grace Period Mandatory Clearing More Exchange-listed Products Spot Gold, Carbon Emissions (markets scheduled to open by KRX) OTC Korean Won-denominated IRS Clearing • Preparation started in 2008, G20 commitment in 2009 • The Capital Market Act was revised March 5, 2013 to reflect OTC clearing • Mandatory clearing : October 2013 - Currently, Test clearing service being provided 10

  11. Development Strategy : Strengthen Clearing Business Clearing Link Adding More Products KRW IRS Clearing ▶ Link with Foreign CCPs - Efficient clearing of cross- border trades - KRX-SGX signed MOU on clearing collaboration (Feb, 2013) ▶Cooperation with Global CCPs - Need to share information and standards in OTC CCP service ▶ Mandatory Clearing starts Oct 2013 ▶ Considering the volumes, KRX will add OTC clearing services to USD IRS, NDF, CDS 11

  12. Thank you very much

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