Evolution in South Korea’s Derivatives Market: Factors for Change

by KyongSun Kong, August 14, 2012
Asia-Pacific

Abstract

South Korea’s listed derivatives trading market boasts the world’s greatest trading volume, accounting for roughly 20% of the global total, and it continues to grow steadily. In contrast, the nation’s OTC derivatives trading volume possesses a meager 0.19% of the global pie, lagging significantly behind other world markets.

In the report Evolution in South Korea’s Derivatives Market: Factors for Change, Celent analyzes the current status and future prospects of South Korea’s domestic derivatives market. The report takes a look at the most traded listed derivatives market in the world as well as its lagging over-the-counter (OTC) derivatives market counterpart, contrasting the trading volumes and value of each as well as placing them in an international context.

Financial markets in South Korea have undergone significant reforms and are reaching a major turning point. Growth-promoting factors are paving a path for expected growth, the prospects of which are examined in this report.

“While South Korea’s derivatives market may not be able to maintain its steep growth curve, it should continue its solid growth due to support from substantial financial market reforms that are taking place,” says KyongSun Kong, an Analyst with Celent's Asian Financial Services Group and author of the report.

This report delves into the regulatory infrastructure of South Korea’s derivatives market, examines the transformation afoot in the nation’s overall financial market, and analyzes the collective effects these are likely to have on the derivatives market.

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is part of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America (Boston)
Erica Ferguson
eferguson@celent.com
Tel.: +1 617 262 8225

Europe (London)
Chris Williams
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Asia (Tokyo)
Yumi Nagaoka
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Table of Contents

Executive Summary

1

South Korea’s Economic Environment

2

South Korea’s Regulatory Environment

4

 

The Capital Market and Financial Investment Business Act

4

 

OTC Derivative Regulation

5

 

KIKO Incident Effect on the Legislative Infrastructure

6

South Korea’s Derivatives Market in a Global Context

7

 

:Listed Derivatives

7

 

OTC Derivatives

8

Current State of Listed Derivatives Trading in South Korea

10

 

Korea Exchange (KRX)

10

 

Current State of Derivatives Trading on the KRX

10

Current State of OTC Derivatives Trading in South Korea

14

Factors Promoting Growth

16

 

Introduction of a CCP Clearinghouse

16

 

Introduction of ATS

16

 

Advent of HFT

17

 

Lifting of the Ban on Hedge Funds

17

 

Emergence of Large Investment Banks

17

Conclusion

19

Leveraging Celent’s Expertise

20

 

Support for Financial Institutions

20

 

Support for Vendors

20

Related Celent Research

21

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