Turnover of derivatives market tumbles this month
Korea's derivatives trading has dropped sharply in July due largely to stricter regulations amid global market jitters stemming from the eurozone debt crisis, data showed Wednesday.
The daily turnover of the local derivatives market averaged 54.5 trillion won ($47.8 billion) during the first six days of this month, down 35 percent from the monthly average of 84.3 trillion won in August 2011, according to the data by the Korea Exchange (KRX).
The daily turnover of options tumbled 56.25 percent to 1.11 trillion won during the cited period, with the figure for futures also plunging 34.7 percent to 53.3 trillion won.
In the first quarter of this year, the trading volume of financial derivatives reached 7.15 trillion deals, down 29.6 percent from the end of last year.
Korea thus yielded its status as the world's top derivatives trader to the Chicago Mercantile Exchange in the United States for the first time in 13 years, the KRX said.
The market slump came as the country's financial regulator began to impose stricter rules for derivatives trading. From last July, the watchdog raised the minimum price to buy or sell options contracts in a bid to limit individual investors.
As for equity-linked warrants (ELWs), it also raised the amount of the required initial deposit in August last year, while further limiting the bid price for liquidity providers.
The sharp decrease in derivatives trading prompted foreign brokerages including Goldman Sachs and UBS to pull out of the local ELW market, the KRX said.
ELWs give the holder the right, but not the obligation, to buy or sell an underlying asset at a set price on or before the expiration date.
Market watchers worry that the stricter rules could spark an outflow of foreign capital, possibly leading to a liquidity crunch amid continuing global uncertainties.
"The derivatives market needs to grow more. Although we need to protect investors, it's dangerous if it harms liquidity," said Nam Gil-nam, a derivatives analyst at the Korea Capital Market Institute.
Currently, the government is pushing for imposing taxes on derivatives transactions, sparking fresh concerns among market participants. (Yonhap)