KRX to list knock-out ELW

KRX to list knock-out ELW


The Korea Exchange (“KRX”) and the financial investment companies have reached an agreement on the proposed standardization of financial products. Accordingly, the KRX plans to introduce knock-out ELW in September 2010.

Knock-out ELW is plain-vanilla warrant with a knock-out option. That is, if the price of underlying asset meets the predetermined knock-out barrier before the expiry of warrant, the validity of warrant is terminated and the warrant is delisted on the day after the knock-out barrier is met.

Knock-out ELW offers several advantages over a plain-vanilla warrant. Investors can easily understand the product structure as the price of Knock-out ELW moves more closely with the price of the underlying asset when compared to the plain-vanilla warrant. Also, it can minimize investors’ losses as the validity of warrant is expired according to the predetermined knock-out conditions before the loss of investment principal and the residual value is paid back to the investors.

Knock-out ELW was first introduced under the label “Turbo Warrant” in Germany in 2001 and in Hong Kong, it was introduced under the label “Callable Bull/Bear Contract” in 2006. (KRX)