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)
 KOSPI 200 Index Futures : world’s No.8 equity futures product, Red (left)
Futures
Annual
ADV
400,000
350,000
300,000
250,000
200,000
150,000
100,000
50,000
KOSPI 200
Futures mkt
opened
KOSPI 200
Options mkt
opened
Options
Annual
ADV
16,000,000
Started to
exempt
Qualified
Institutional
from Pretrade Margin
14,000,000
12,000,000
Price Limit
fr.±5%,±10%,
to ±10%,±15%
Largescale
market
reform
10,000,000
8,000,000
Minimum
Deposit
Lowered
KOSPI 200
Options
Multiplier
quintupled,
Requirement
of more cash
margin
4,000,000
2,000,000
0
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
0
6,000,000
3
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
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
KRX Derivatives Market Vision
Expand
Product
Offerings
Extend
Global
Alliance
Strengthen
Clearing
Business
Big Leap Forward
Global Premier KRX Derivatives Market
6
Development Strategy : Expand Product Offerings
Petroleum Products E-Trading Market (2012~)
 The
-
world’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
• Refiner
• Wholesaler
• Importer
• Petrol Station
• Wholesaler
• Diesel Store
Diesel Price Difference btw Refiner, E-Trading
KRW/Liter
E-Trading
전자상_경유
1750.0
1700.0
1650.0
1600.0
1550.0
Feb
주
주
Jan
주
주
Dec
주
주
주
Nov
주
주
Oct
주
주
Sep
주
주
Aug
주
주
1500.0
주
 KRX plans to introduce Petroleum Derivatives
Refiner
정유사_경유
주
- Provides anchor price for OTC trading
- Enhanced competition, transparency
- Petrol stations with negotiating power
when OTC trading
1800.0
주
 Contributed to lowering petroleum retail price
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
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
Yearly ADV
2009
2010
2011
2012
KOSPI200
Futures (CME)
705
3,791
15,583
28,223
KOSPI200
Options (Eurex)
-
1,955
71,195
132,797
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
Development Strategy : Strengthen Clearing Business
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
5 of Mar 2013
The Capital
Market Act
Revised
October 2013
FSC authorizes KRX as CCP
Clearing Service
Third country CCP
Recognition/Registration
Grace Period
Mandatory
10
Development Strategy : Strengthen Clearing Business
KRW IRS
Clearing
Adding
More
Products
Clearing
Link
▶ Link with Foreign CCPs
- Efficient clearing of cross▶ Mandatory
▶ Considering the volumes,
Clearing starts
KRX will add OTC clearing
Oct 2013
services to
USD IRS, NDF, CDS
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
11
Thank you very much