3rd Quarter ELS·ELB Issuance Amount 9.4 Trillion Won... 8.1% Decrease Compared to Previous Quarter

Total Derivative-Linked Securities Balance 78.3 Trillion
Decrease of 2.2 Trillion from Previous Quarter... Issuance Amount < Redemption Amount
DLS·DLB Issuance Amount 4.8 Trillion... 10.1% Increase

In the third quarter of this year, equity-linked securities (ELS) and equity-linked bonds (ELB) were issued at a scale of 9.4 trillion KRW, down 8.1% compared to the previous quarter, the second quarter. During the same period, the issuance amount of other derivative-linked securities (DLS) and other derivative-linked bonds (DLB) increased by 10.1% to 4.8 trillion KRW compared to the previous quarter.

ELS·ELB, Non-Principal Guaranteed Type Increased 8.9% Compared to Previous Quarter

According to the Financial Supervisory Service on the 30th, the total outstanding balance of derivative-linked securities (ELS·ELB·DLS·DLB) in the third quarter was 78.3 trillion KRW, down 2.2 trillion KRW from 80.5 trillion KRW at the end of June, the previous quarter. The issuance amount was 14.2 trillion KRW, and the redemption amount was 15.4 trillion KRW.

Among them, the issuance amount of equity-linked products, ELS and ELB, was 9.4 trillion KRW, down 800 billion KRW (8.1%) from 10.2 trillion KRW in the second quarter. Public offering products accounted for 7.8 trillion KRW, and private placement products accounted for 1.6 trillion KRW. The issuance amount of principal-protected products was 5.2 trillion KRW, down 18.3% from the previous quarter, while non-principal guaranteed products increased by 8.9% to 4.2 trillion KRW.

By underlying asset, the issuance amount of index-type ELS was 5.7 trillion KRW, up 500 billion KRW from 5.2 trillion KRW in the previous quarter. The share in the third quarter also increased to 60.4% from 50.7% in the previous quarter. During the same period, stock-type ELS was issued at 3.5 trillion KRW, and mixed-type at 300 billion KRW.

The issuance amount by major underlying assets was 77.6% for KOSPI 200, followed by Standard & Poor's 500 (56.0%), Euro Stoxx 50 (50.2%), Nikkei 225 Index (19.8%), and Hong Kong Hang Seng China Enterprises Index (HSCEI) (5.2%). When two or more underlying assets were included, double counting occurred.

By product structure, the issuance amount of knock-in type ELS was 2.1 trillion KRW, and non-knock-in products were 7.3 trillion KRW. In the previous quarter, knock-in type ELS issuance was 1.5 trillion KRW, and non-knock-in products were 8.7 trillion KRW, showing an increase of 600 billion KRW for knock-in type and a decrease of 1.4 trillion KRW for non-knock-in type.

Regarding underwriting status, bank trusts accounted for 3.1 trillion KRW, or 32.9%. General public offerings accounted for 3.5 trillion KRW, or 37.6%, and retirement pension-oriented products accounted for 1.2 trillion KRW, or 12.6%. This trend was similar to the second quarter, where bank trusts accounted for only 3 trillion KRW. In the same period last year, 5.5 trillion KRW was sold through bank trusts, but the temporary suspension of ELS sales by major banks at the beginning of the year affected two consecutive quarters.

The redemption amount was 11.1 trillion KRW, down 7.3 trillion KRW (39.9%) from the previous quarter. Early redemption amounted to 4.8 trillion KRW, significantly lower than 8.5 trillion KRW in the previous quarter. During the same period, maturity redemption was 6.3 trillion KRW, down from 10 trillion KRW in the previous quarter. The Financial Supervisory Service explained, "The decrease in maturity redemption compared to the previous quarter is due to the concentration of maturity redemptions of HSCEI-based ELS in the previous quarter, resulting in a base effect."

As a result, the outstanding balance of ELS and ELB issuance at the end of September was 48.2 trillion KRW, down 2.5 trillion KRW (4.9%) from 50.7 trillion KRW at the end of June. The outstanding balance of principal-protected products increased by 5.2% to 36.3 trillion KRW compared to the end of June, while the outstanding balance of non-principal guaranteed products decreased by 26.6% to 11.8 trillion KRW.

By underlying asset, the amounts were highest in the order of KOSPI 200 (13.8 trillion KRW), Standard & Poor's 500 (9.2 trillion KRW), Euro Stoxx 50 (8.5 trillion KRW), HSCEI (3.2 trillion KRW), and Nikkei 225 (2.3 trillion KRW). The Financial Supervisory Service noted, "The outstanding balances of S&P 500, Euro Stoxx 50, and HSCEI-based ELS have steadily decreased from the end of September 2023 to the end of this September."

DLS·DLB, Private Placement Products Increased 32.7% Compared to Previous Quarter

The issuance amount of DLS and DLB, products not linked to stock prices, was 4.8 trillion KRW in the third quarter, up 500 billion KRW (10.1%) from 4.3 trillion KRW in the previous quarter. Public offering issuance was 1.5 trillion KRW, down 19.6% from the previous quarter, while private placement increased by 32.7% to 3.3 trillion KRW. By underlying asset, interest rates accounted for 3.5 trillion KRW (74.6%), followed by credit (600 billion KRW, 12.3%) and exchange rates (500 billion KRW, 9.5%).

The redemption amount was 4.3 trillion KRW, up 1 trillion KRW (29.2%) from 3.3 trillion KRW in the previous quarter. Principal-protected products accounted for 3.7 trillion KRW, and non-principal guaranteed products accounted for 600 billion KRW.

Thus, the outstanding balance of DLS and DLB issuance at the end of September was 30.1 trillion KRW, up 300 billion KRW (1.1%) from 29.8 trillion KRW at the end of June.

The hedging method for all derivative-linked securities saw a slight decrease in the proportion of self-hedging compared to the end of June. Among the outstanding balance of derivative-linked securities (78.3 trillion KRW) at the end of September, the amount of self-hedging was 51.7 trillion KRW, down 2.2 trillion KRW from 53.9 trillion KRW at the end of June. The proportion also decreased by 1.0 percentage point to 66% from 67% at the end of June.

As of the end of September, the valuation amount of assets managed with issuance funds (hedging assets) for derivative-linked securities was 83 trillion KRW, exceeding the liability valuation amount of 78.6 trillion KRW by 4.4 trillion KRW.

Regarding the profit and loss status of derivative-linked securities, the investment return rate for the third quarter was 0.8% per annum for ELS, up 7.2 percentage points from the previous quarter. DLS showed an annual return of 2.0%, up 0.9 percentage points from the previous quarter. This was influenced by the fact that losses from HSCEI investors matured in the second quarter, turning the ELS return rate into a profit.

The Financial Supervisory Service stated, "We will strengthen monitoring of derivative-linked bond issuance status and investor risk warnings," and added, "We will also enhance monitoring of the possibility of losses for derivative-linked securities investors."

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