Author Name: Kyungsoo Choi, Chairman & CEO, Korea Exchange
Could you give us a bit of background about your exchange?
In January 2005, the Korea Exchange, Inc. (KRX) was launched as Korea's single integrated exchange under the Korea Stock & Futures Exchange Act.
KRX was created through the merger of the Korea Stock Exchange (KSE), the Korea Futures Exchange (KOFEX), the KOSDAQ Stock Market, and the KOSDAQ Committee, a sub-organization of the Korea Securities Dealers Association (KSDA).
The securities and derivatives markets of former exchanges are now business divisions of Korea Exchange: the Stock Market Division(KOSPI Market Division), KOSDAQ Market Division and Derivatives Market Division.
On July 1, 2014, KRX officially launched KONEX market to foster the growth of start-up companies by lowering the entry barrier into the regulated market.
KRX is a comprehensive securities market that meets the wide-ranging demands of investors with a diverse line-up of products extending from traditional securities such as stocks and bonds to derivatives, exchange traded funds (ETFs), equity linked warrants (ELWs), real estate investment trusts (REITs) and ship investment companies. In particular, it maintains low transaction costs by integrating the management of the securities and derivatives markets and provides investors with efficient means to hedge risks and manage assets.
At the end of 2013, 1,831 companies (including 15 foreign companies) were listed on the KOSPI, KOSDAQ and KONEX Market in total. The annual trading value reached USD 1,284.6 billion, making KRX 10th world's largest stock exchange. In addition, KRX is one of the largest derivatives exchanges with annual trading volume of 820.7 million contracts.
How active are foreign investors in your exchange? How accessible is your market?
Foreign investment in the Korean stock market has risen steadily due to ample global liquidity and stable corporate growth. In December 2013, foreign holdings of stocks listed on KRX exceeded 35% of the KOSPI's market capitalization.
In 2013, foreign stock ownership increased by 152.7% compared to that of 2008, in which the global financial crisis occurred. Over 23%, 45% and 57% of the trading value in KOSPI, KOSPI 200 Futures and KOSPI Options respectively were attributable to foreign investors.
KRX has continuously made multi-faced efforts and investments to attract global investors and enlist global companies. As part of an effort to promote the advancement and internationalization of the Korean capital market, KRX is actively pursuing the listing of foreign companies on the Korea Exchange. As a result, KRX has achieved great results in a short period of time, starting with the first-ever listing of a foreign company in Korea in 2007 and the listing of 15 foreign companies by the end of 2013.
Also, as part of our global strategy, KRX established global markets by linking KOSPI 200 Futures with CME Group in November 2009 and KOSPI 200 Options with Eurex in August 2010 to internationalize KOSPI 200 derivatives products and make 24-hour trading possible.
As of the end of 2013, the average daily volume of KOSPI 200 Futures and KOSPI 200 Options traded on the global market recorded 16,125 and 84,357 contracts respectively. In particular, the trading volume of KOSPI 200 Futures amounted to 8.7% of total volume traded in the global market and 41.4% transactions of KOSPI 200 Futures were made by foreigners, which show a substantial amount of qualitative growth.
What new project/product are you currently working on?
KRX now stands at a critical point in our history when considering hardships such as persistently reduced transactions, the introduction of a competitive system in the capital market, and intensifying competition among exchanges beyond Asia. Therefore, KRX is responding to changes in the global stock exchange industry and is trying to secure market competitiveness.
Korean financial market has established a stringent but market-friendly and flexible regulatory regime. KRX enhances investor protection by providing measures to hedge the market volatility while facilitating market participants' convenience by lowering stock trading units and reforming after-hours trading market. Also, we introduced diversified listing requirements and adopted the global best practice in disclosure system in order to contribute to the smooth supply of capital to companies. KRX will keep reviewing its system to lessen unnecessary burdens on companies and foster trading at its markets.
As an integrated exchange products ranging from traditional securities to derivatives are traded, KRX is developing a diverse line-up of products to meet the wide-ranging demands of investors. To such backdrop, KRX recently listed 35 additional single stock futures and will list exchange-traded notes (ETNs) in later this year. Moreover, further investment in the existing commodities products like Gold and Petroleum along with carbon emission trading market due to launch in 2015 is scheduled to take place.
KRX has successfully introduced clearing house service for OTC derivatives such as Korean Won-denominated interest rate swaps (IRS), following toughened regulations on OTC markets. The scope of derivatives contracts subject to the CCP clearings will be gradually expanded to other derivatives products like NDF and CDS to diversify revenue streams.
In addition, KRX has been recognized as world-class IT technology provider through various IT based cooperative projects with many Asian exchanges. We will keep providing financial technology services to global partners utilizing IT technology based on our new trading platform "Exture+" which was developed earlier this year.
What are the challenges you see in your market today and in the future?
Internally, the reduced transaction activity amid the global economic slump and financial crisis has worsened market conditions. Moreover, externally, with unlimited competition in a borderless economy, consolidation in exchange industry and diversification of business beyond traditional exchange activities are currently underway.
While many exchanges are seeking liquidity expansion and business diversification through M&A or strategic alliance, KRX is taking various measures to enhance its competitiveness by listing foreign companies and seeking alliance and cooperative relationship with many global exchanges which eventually help us to become one of the global big 7 exchanges with world's 9th stock market in terms of market capitalization and 5th in terms of equity trading value and derivatives trading volume by 2020.
In this context, our management strategy approach comprises four areas for action – stimulating the capital market, nurturing new growth engines, expanding global presence, and building sustainable business.
We will further enhance our IT service business, which is already actively in progress, expand trading linkage with global markets and closely examine a viable M&A action plan. Ultimately we will endeavor to be a true global player.
How do you assess your exchange's position at a time of increased globalization?
Established in 1956 only with 12 companies and 4 bond products listed, KRX markets have developed to the world's 14th largest in terms of equity market capitalization and 9th in derivatives market trading volume. It also has more than 1,800 listed companies and over 37,000 foreign investors are actively trading at its markets.
KRX maintains solid competitiveness through fair and transparent market management, world-class IT infrastructure, market environment comparable to advanced countries', and steady development of new products abreast of market trends.
Since 2009, FTSE classifies KRX stock market as developed market and KOSPI 200 Futures and Options Global market which were established between CME and Eurex are highly acknowledged by global investors. These are mere examples of our efforts to attract more global investors to Korean market and we are pursuing diverse global expansion strategies to establish itself as an advanced global exchange.
To this end, KRX will gradually expand its global business beyond Asia to Eastern Europe, Africa, and South America and build a global "KRX Road" by actively continuing to pass on knowledge and experience gained from the development of the Korean capital market to emerging markets and supporting to establish their IT systems.