[2020 National Audit] Hong Seong-guk: "Securities Firms Recommending High-Risk Overseas Futures Options to Seo-hak Ants... Serious Moral Hazard"

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[Asia Economy Reporter Park Jihwan] Securities firms are recommending high-risk overseas futures and options investments to individual investors, known as 'Seohak Ants,' while neglecting to provide risk warnings and investor protection, raising serious concerns about moral hazard.

According to data submitted by the Korea Financial Investment Association to Hong Sung-guk, a member of the National Assembly's Political Affairs Committee from the Democratic Party of Korea, the trading volume of individual investors investing in representative overseas futures and options products such as Nasdaq 100 E-mini and Micro E-Mini surpassed 20.34 million contracts as of August this year. This represents a 173% increase from last year's total trading volume of 7.45 million contracts. The contract amount reached 1.4344 trillion dollars, a 70% increase from last year's total of 844.6 billion dollars. The growth is expected to be much larger by the end of this year.

Overseas futures and options, considered representative ultra-high-risk derivatives, are characterized by large contract amounts and leverage, resulting in high volatility in returns and a high risk of principal loss, with potential losses also arising from exchange rate fluctuations. Due to these risks, domestic futures and options trading sets minimum entry barriers. These include an initial basic deposit of at least 10 million won, a margin deposit ranging from 0.51% to 84.45% of the contract amount, and completion of at least one hour of prior education on the risks of derivatives and three hours of simulated trading.

However, Representative Hong pointed out that the entry barriers for overseas futures and options trading are much lower than those for domestic trading. There are only margin systems based on each country's exchange standards, with no obligations for basic deposits, prior education, or simulated trading courses. According to Hong, only a 14-page 'Risk Disclosure Statement related to Overseas Investment' as stipulated by the Financial Investment Business Regulations is provided.

On the same day, Hong Sung-guk criticized Yoon Seok-heon, Governor of the Financial Supervisory Service, stating, "Securities firms that exploit regulatory and supervisory blind spots to recommend high-risk investments to individual investors are undermining trust in our distribution market and fueling Korea discount themselves." He also requested, "Please provide the supervisory authority's opinions and plans regarding the capital market and investor protection before the comprehensive audit."

In response, Governor Yoon said, "Speculative movements in the capital market, including derivatives distribution, have recently increased," and added, "I agree on the need to regulate overseas futures and options trading and will discuss specifics with the Financial Services Commission."

This content was produced with the assistance of AI translation services.