Derivative-linked Securities Issuance and Redemption Both Increase in Q1... Outstanding Balance 98.7 Trillion Won

The Financial Supervisory Service (FSS) announced on the 18th that the issuance amount of derivative-linked securities in the first quarter of this year was 14.9 trillion KRW, and the redemption amount was 17.4 trillion KRW, both increasing compared to the same period last year.

According to the FSS, the issuance amount of derivative-linked securities in the first quarter was 14.9 trillion KRW, an increase of 400 billion KRW compared to the same period last year, and the redemption amount was 17.4 trillion KRW, an increase of 8.4 trillion KRW. As the redemption amount exceeded the issuance amount, the outstanding balance at the end of the first quarter decreased by 3.5 trillion KRW from the previous quarter to 98.7 trillion KRW.

Regarding stock indices, the issuance amount of equity-linked securities (ELS) based on individual stocks was 9.7 trillion KRW, down 2.3 trillion KRW (19.4%) from the same period last year. Compared to the previous quarter, it decreased by 16.5 trillion KRW (62.9%). Although the issuance of principal non-guaranteed ELS continued to decline, the issuance amount turned to an increasing trend in the first quarter due to the rise of major global indices. Furthermore, the significant decrease in issuance compared to the previous quarter is interpreted as a base effect caused by concentrated refinancing demand for ELS included in year-end retirement pensions.

The issuance amount of index-type ELS was 7.2 trillion KRW, down 1.6 trillion KRW from the same period last year, but its share increased by 1.2 percentage points to 74.1%. The issuance amount of individual stock and mixed-type ELS was 2.6 trillion KRW, a decrease of 700 billion KRW.

ELS with three underlying assets had the highest issuance amount at 5.3 trillion KRW, but its share decreased by 7.7 percentage points to 54.2% compared to the same period last year.

The issuance scale by underlying assets was ranked as follows: S&P 500 (6.3 trillion KRW), EuroStoxx 50 (5.7 trillion KRW), KOSPI 200 (3.9 trillion KRW), and Nikkei 225 (1.8 trillion KRW).

The issuance amount of ELS including Knock-In options, which are principal loss zones, was 2.8 trillion KRW, down 1.5 trillion KRW from the same period last year, and its share also decreased by 6.9 percentage points to 28.7%.

ELS issued in the first quarter were sold in the order of bank trusts (4.7 trillion KRW, 48.4%), general public offerings (2.1 trillion KRW, 21.3%), and retirement pensions (1.6 trillion KRW, 17.0%).

ELS redemption amount recorded 12.2 trillion KRW, significantly increasing early redemptions due to the rise of major global stock markets. As of the first quarter, the outstanding balance of ELS issuance was 67.4 trillion KRW, an increase of 5.5 trillion KRW compared to the same period last year, but decreased by 3.3 trillion KRW from the previous quarter due to net redemption conversion. The outstanding balance of index and mixed-type ELS by underlying assets was identified as S&P 500 (36.2 trillion KRW), EuroStoxx 50 (33.2 trillion KRW), KOSPI 200 (22.7 trillion KRW), and H Index (19.7 trillion KRW).

The issuance amount of derivative-linked securities (DLS) based on underlying assets other than stocks, such as interest rates, exchange rates, and commodities, was 5.2 trillion KRW, an increase of 2.7 trillion KRW, but a decrease of 2.2 trillion KRW compared to the previous quarter. The increase in principal-guaranteed DLS issuance due to rising coupon rates and securities firms' funding demand compared to the same period last year had an impact.

The issuance amount by underlying assets was compiled as interest rates (4.1 trillion KRW), credit (1 trillion KRW), and others/commodities (40 billion KRW). As of the first quarter, the outstanding balance of DLS issuance was 31.3 trillion KRW, an increase of 3.8 trillion KRW, but a decrease of 20 billion KRW from the previous quarter. Principal-guaranteed DLS increased by 4.5 trillion KRW to 24.9 trillion KRW, while principal non-guaranteed DLS decreased by 600 billion KRW to 6.4 trillion KRW.

The scale of self-hedging during the operation of derivative-linked securities issuance funds was 59.2 trillion KRW, an increase of 6.2 trillion KRW compared to the same period last year, and its share also rose by 0.7 percentage points to 60%.

Looking at the details of managed assets, as of the first quarter, the valuation amount of assets managed with derivative-linked securities issuance funds was 99.4 trillion KRW, exceeding the liability valuation amount of 94.3 trillion KRW by 5.1 trillion KRW. Hedge assets were mostly bonds at 79 trillion KRW (79.5%), followed by other assets at 11.3 trillion KRW (11.4%) and deposits and cash at 8.4 trillion KRW (8.5%).

The investment return rate for ELS was 7.2% per annum, up 3.5 percentage points from the same period last year, and the investment return rate for DLS was 2.2% per annum, up 0.7 percentage points from the same period last year. Due to the high-interest rate trend and increased volatility of underlying assets such as stock indices, the coupon rates of derivative-linked securities improved, leading to an overall improvement in investment returns. The profit and loss from issuance and operation of derivative-linked securities by securities firms increased significantly to 541.6 billion KRW from 60.2 billion KRW in the same period last year. Derivative-linked securities with Knock-In events amounted to 7.2 trillion KRW, accounting for 7.3% of all derivative-linked securities, all occurring in ELS.

An FSS official stated, "Early redemptions increased due to the recovery of major global indices in the first quarter, and the scale of new Knock-In occurrences was minimal. However, we will continue to monitor the potential investor losses related to the Hong Kong H Index and Knock-In occurrences in preparation for future domestic and international financial market volatility."

He added, "We will continuously monitor the issuance status of derivative-linked bonds in connection with securities firms' liquidity risks and the short-term money market, and strengthen investor protection by distributing investor advisories when potential risks increase."

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