Sharp Decline in Issuance and Redemption of Derivative-Linked Securities... Securities Firms Suffer 500 Billion Won Loss

[Asia Economy Reporter Park Jihwan] Last year, due to the impact of COVID-19, the global stock markets plummeted, causing both the issuance and redemption amounts of derivative-linked securities (ELS·DLS) to sharply decline. Securities firms also recorded a loss of 533.7 billion KRW in the issuance and management of derivative-linked securities, turning to a large-scale deficit.

According to the '2020 Status of Derivative-Linked Securities Issuance and Management by Securities Companies' announced by the Financial Supervisory Service on the 27th, the issuance amount of derivative-linked securities last year was 91.3 trillion KRW, down 37.7 trillion KRW (29.2%) from 129 trillion KRW the previous year.

The redemption amount was 107.2 trillion KRW, a decrease of 22.4 trillion KRW (17.3%) compared to 129.6 trillion KRW last year. With redemptions exceeding issuances, the outstanding issuance balance at the end of last year was 89 trillion KRW, the lowest since 84.1 trillion KRW in 2014. This is a decrease of 19.2 trillion KRW (17.7%) from 108.2 trillion KRW a year earlier.

Securities firms incurred a loss of 533.7 billion KRW in the process of issuing and managing derivative-linked securities such as ELS and DLS, turning to a deficit. This marks a return to losses for the first time in four years since a loss of 260.8 billion KRW in 2016. It is analyzed that the cause was a 1 trillion KRW loss in hedge operations due to the sharp decline and increased uncertainty in major global stock markets in the first quarter of last year.

Last year, the investment return rate for ELS was 3.2% (annual average), down 1.1 percentage points compared to the same period the previous year. The investment return rate for DLS recorded 1.0%, a decrease of 1.3 percentage points.

As of the end of last year, the scale of ELS·DLS with principal loss occurrence zones (knock-in) was 1.5 trillion KRW, about 1.6% of the total. The Financial Supervisory Service stated, "Considering the recent stock market adjustment trends and the possibility of global interest rate hikes, we will continue to monitor issuance and loss risks by underlying assets."

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