Individual Stock Futures to Be Available in May
By Park Hyong-ki
Staff Reporter
The Korea Exchange (KRX) said it will introduce individual stock futures by May next year to help boost its derivatives product line-ups.
The individual stock futures are expected to breathe new life into the domestic stock derivatives market that has been dominated by equity-linked warrants. The opening of the individual stock futures market is meaningful as it will boost the trading of individual stock options that has been lackluster due to a lack of diverse hedging tools, the exchange said.
Investors will be able to buy and sell 15 individual stocks at preset prices in the future under individual stock futures contracts ― the individual stocks are Kookmin Bank, Samsung Electronics, Shinsegae, Shinhan Financial, Woori Financial, Hana Financial, KEPO, Hyundai Heavy Industries, Hyundai Motor, KT, KT&G, LG Electronics, LG.Philips LCD, POSCO and SK Telecom.
Shin Kwang-sun of the KRX said the exchange selected these large-cap stocks because they are stable and have low volatility as a first step in launching single stock futures market.
``Trading of futures contracts on those stocks will give more leverage to investors, and not to mention, a chance to hedge risks,'' Shin said.
He said investors will benefit more by investing in individual stock futures as trading taxes on futures are just one tenth of stock transaction taxes on the spot market.
Investors are only required to deposit less than half as much as deposits needed for stock trading when investing in individual stock futures. They need to open a futures account at a securities firm and make a deposit before trading futures.
The KRX said although the country is one of the biggest markets for index futures and options trading, the number of listed derivatives products remain small and only a few products such as KOSPI200 Options and Futures are highly liquid.
Currently, Korea's options market is the biggest globally, while its futures market ranks 5th in terms of trading volume.
The country has a market for trading individual stock options. But the market failed to attract investors as the success of the KOSPI200 Options overshadowed such individual stock options trading.
This failure led the market to become illiquid as more and more investors opted to invest in KOSPI200 Options.
Although analysts agree that the selection of blue-chips with low volatility as underlying stocks for individual stock futures trading is a good start, the exchange and regulators need to overhaul some systems for more flexibility to allow greater participation from institutional investors.
Individual stock futures trading are mostly geared toward attracting retail investors seeking short-term gains.
``There will be merits when institutional investors can freely invest in individual stock futures, as their participation can increase liquidity on the futures market,'' said Park Moon-seo, an analyst of Seoul Securities.
Should the single stock futures market be able to successfully attract investors, it can not only raise leverage on trading but also increase demand for other derivatives products such as single stock options.