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KOSPI200 Futures & Options Market - Current Status & Key Factors for Success

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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KOSPI200 Futures & Options Market - Current Status & Key Factors for Success

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

  2. 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

  3. 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

  4. Trading Volume of World Derivative Market(2002) Unit : ten thousand contracts Source: FIA Monthly Volume

  5. 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%)

  6. Trading Volume of World Stock Index Futures(June, 2003) Unit : thousand contracts Source: FIA Monthly Volume

  7. 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%)

  8. Trading Volume ofWorld Stock Index Options(June, 2003) Unit : thousand contracts Source: FIA Monthly Volume

  9. KOSPI 200 Index & Historical Volatility

  10. Implied Volatilities of KOSPI200 Options

  11. Average Premium of KOSPI200 Options

  12. Trading Weight by Types of Investors in Futures Market (Jan. ∼July 2003)

  13. Trading Weight by Types of Investors in Options Market (Jan. ∼July 2003)

  14. Trading Weights by Exercise Prices (Unit : %)

  15. Trading Weights by Investors & Exercise Prices (Jan. 2003 ∼ July / Unit : %)

  16. Circuit Breakers & Side Car (Unit : Frequency)

  17. Program Trading (Unit : millions won, %) Weight = Trading Value of Program Trading / Trading Value of Stock Market * 100

  18. % Change of Underlying Index at Expiration

  19. Status of Underlying Index atExpiration ( ) : the number of KOSPI200 futures and options expiration days during the period

  20. Ordering Activity at Futures Market (Unit : # of cont/order, /day)

  21. Ordering Activity at Options Market (Unit : # of cont/order, /day)

  22. Weight by Order Types at FuturesMarket August 1 ∼ 20, 2003

  23. Weight by Order Types at Options Market August 1 ∼ 20, 2003

  24. The Number of Active Accounts (January 1, 2003 ∼ July 31, averaged)

  25. 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

  26. 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%

  27. 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

  28. 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

  29. 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

  30. 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

  31. 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

  32. 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

  33. Ensuring Settlement - Settlement under the responsibility of the KSE o Central counterparty - Conservative margin system

  34. Emphasis on Education & Advertisement - Publication of pamphlets - Newspapers articles and TV programs - Seminars & explanatory meetings • On-the-job training

  35. Thank You !

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