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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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slide1

Derivative Markets at KRX

Aug 10, 2005

Korea Exchange

topics
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
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

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
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
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
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

options market kospi 200 index
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

options market kospi 200 index9
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
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

technology
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
technology12
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
slide13

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
slide14

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
slide15

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
slide16

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