FOCUS: Could you give us a bit of background about your exchange?
KRX: Korea Exchange operates a centralized securities and derivatives market where derivatives, equities, and bonds are traded on a common platform. Our flagship derivatives products, KOSPI 200 options and futures have been the most actively-traded derivatives products in the world with 1.6 billion and 62 million contracts respectively last year. They are offered around the clock in collaboration with partner exchanges to provide better accessibility to global investors. We also have a robust Korean Won/US Dollar Futures market and a Korea Treasury Bond Futures market, ranked 6th and 8th each globally in terms of contracts last year. In our USD 1,179 billion cash equities market, we have listed companies such as Samsung Electronics, Hyundai Motors, and POSCO which have significant presence in global markets. The average daily trading value of the cash equities market was USD 6 billion last year. We also have a bond market for public and corporate bonds and the outstanding value of its listed bonds is USD 1,148 billion. KRX was established as a corporation in Jan 2005 by consolidating three markets, Korea Stock Exchange (KSE), KOSDAQ Stock Market and Korea Futures Exchange (KOFEX).
FOCUS: How active are foreign investors in your exchange? How accessible is your market?
KRX: Foreign Investors are very active in all of our markets. Aside from that fact that foreigners have to register to the financial regulator for stock trading, foreign investors have not much restriction for investing in Korean capital markets. Over 40% of KOSPI 200 options trading is done by investors abroad, and 20% of cash equities trading were attributable to foreigners. We are working on introducing a new trading platform “EXTURE+” after 4 years we started to use current system, and the new system, scheduled to operate in early 2014, will give more accessibility to foreign investors with enhanced system capabilities. We provide good connectivity to investors with advanced IT infrastructure currently, too.
FOCUS: What new project/product are you currently working on?
KRX: As part of KRX’s globalization initiative, we will begin clearing OTC derivatives in the middle of this year. We will start with launching voluntary clearing of Korean Won-denominated interest rate swaps, and the clearing will be mandatory in October this year. OTC Clearing will, first of all, decrease the operational risk of financial markets as emphasized in G2O commitments. We expect the introduction of OTC Clearing will increase OTC trading volume as transparency improves and post-trade processes streamline and automate. Especially medium and small-sized financial institutions with low credit status will be able to participate in OTC trades more easily. Recently, KRX and Singapore Exchange have signed a Memorandum of Understanding (MoU) to jointly explore collaborations in the development of over-the-counter financial derivatives clearing capabilities. Because financial institutions may have to build systems for OTC clearing in many jurisdictions, KRX is working with foreign clearers to find ways to minimize the cost of financial companies. We also plan to revamp our gold and lean hog market in an effort to boost their attraction to the rank and file who need to manage their everyday risks.
FOCUS: What are the challenges you see in your market today and in the future?
KRX: Due to the spread of wait-and-see attitude caused by the global financial crisis, the trading value in both the securities and derivatives markets declined rapidly last year and there were some problems with the operating income and expenditure. However, as the KOSPI index climbed up 9.4% over 2012, the total market capitalization rose to the record high of USD 1,179 billion at the end of 2012, and the stock prices also showed signs of recovery from the stagnation in 2011. Meanwhile, the operating environment of Korea Exchange has been changing very fast. Externally, global exchanges have intensified the competition for the global market leadership. Cross-border M&A and bringing OTC derivatives trading onto exchange markets are clear examples. Within Korea, once the planned introduction of alternative trading system (ATS) becomes reality, KRX will have to deal with fierce competition in the near future.
FOCUS: How do you assess your exchange’s position at a time of increased globalization?
KRX: We have a fairly good position in the globalized exchange industry. We have best-selling KOSPI 200 options and futures, and we have capabilities to develop our cash and derivatives market and accompanying IT systems not depending on other companies. KRX has succeeded in developing customized markets in Korea, and this experience gives us capabilities to assist developing countries to form their ideal capital markets microstructure and systems. Last year we created the Petroleum Products E-Trading Market, a competitive market for cash gasoline and diesel, for the first time in the world. It attracted quite a volume and contributed to lowering retail gasoline and diesel prices in Korea. KRX also has best global partners such as Chicago Mercantile Exchange and Deutsche Börse Eurex, who give us global presence effectively.