Kim Bong-soo, second from right, chairman of the Korea Exchange (KRX) and MSCI Chairman Henry Fernandez, second from lef,t hold an agreement on market information services in the KRX’s Yeouido office in Seoul, Oct. 21. / Courtesy of the KRX

By Kim Da-ye

Looking at a photo of Korea Exchange (KRX) Chairman Kim Bong-soo and MSCI Chairman Henry Fernandez holding an agreement on market information services, one may wonder if the Seoul bourse is giving up one of its most powerful assets.

MSCI, the global provider of equity indices, and the KRX have long fought a tug of war on the KRX’s monopoly in using stock market data to produce derivatives and list them on the bourse.

On Oct. 21, MSCI and the KRX signed a deal in which the former would pay for using the latter’s data to formulate indices. On the right to use those figures to make equity index based derivatives, the KRX said in a statement, “We will discuss it separately later.” MSCI also unveiled its plan to open a Seoul office next year.

Despite signs of the two becoming increasingly amicable, the KRX has no intention to let others offer derivatives based on its own stock market data.

“The agreement with MSCI clearly says that KRX’s permission is required to produce financial instruments based on the indices. MSCI understands that,” said Kim Jin-gyu, the president of the KRX's derivatives market division.

“And we aren’t going to give such authorization.”

The KRX has good reason not to do so. The KOSPI 200 Options, which the KRX designed and listed, has been the world’s most traded index-based options for years, generating the KRX revenue through fees.

One KRX official, who used to work at the derivatives division, said that a concerning scenario would be MSCI-index-based derivatives similar to the KOSPI 200 Options being listed on the Singapore Exchange, taking away a significant portion of foreign investors from the KRX.

More than 33 percent of traders of KRX-listed derivatives are foreigners.

“That would be an outflow of the national wealth,” the official said.

Nearly half of all foreign investors trade futures based on the Nikkei 225, a stock market index for the Tokyo Stock Exchange calculated by the Nihon Keizai Shimbun newspaper, in Singapore, not in Japan.

Are there any benefits for the KRX to cede its monopoly?

It has never been made official, but many in this industry are convinced that MSCI didn’t upgrade Korea’s emerging market status to “developed” in the last three years to pressurize the KRX to let its stock market data be used freely by others including MSCI.

In June 2010, MSCI pointed out the absence of offshore currency markets for the Korean won and the rigidity of the ID systems as the reasons of keeping Korea’s status unmoved. It also criticized the KRX for “imposing an anti-competitive clause” in providing stock market data.

Fernandez highlighted those three issues in multiple interviews with the local media during his recent visit.

MSCI’s categorization of countries helps institutional investors decide where to allocate their money.

Mirae Asset analyst Lee Jae-hoon said in his report that assuming some $3.5 trillion is globally allocated in line with MSCI’s guidance, an additional $18.3 billion or 20.1 trillion won could flow into Korea, if the country joins the list of developed countries.

On the other hand, Korea is a big fish in the emerging category, which could attract more “active” money amid poor performances of developed economies. Lee said that Korea’s weight would shrink from 14.8 percent in the emerging category ― the third largest after China and Brazil ― to 2.5 percent in the developed market segment.

While the KRX argues that its ownership of the stock market data is a separate issue from Korea’s market accessibility, some wonder if an upgrade at the expense of its monopoly is worth it.