Revival of 'High-Risk' ELS...Trend Shifts Toward KOSPI and Securities Firms

Market Slump After "Hong Kong Incomplete Sales"

7 Trillion Won Issued by April This Year... Up 1 Trillion Won from Last Year

Largest Underwriter Shifts from Banks to Securities Firms

KOSPI, Samsung Electronics, and SK hynix Emerge as

The equity-linked securities (ELS) market, which had stagnated for about a year due to the incomplete sales crisis involving Hong Kong H Index ELS, is regaining momentum. The main sales channel has shifted from banks to securities firms, and the focus of underlying assets has moved from the U.S. stock market to the domestic stock market.

According to SafeRO at Korea Securities Depository on May 12, the total ELS issuance from January to April this year reached 7.4552 trillion won. This is an increase of about 1.1 trillion won compared to the 6.3435 trillion won issued during the same period last year. In particular, last month’s issuance scale was 2.3965 trillion won, which, along with December 2025 (2.3143 trillion won) and January this year (2.1255 trillion won), has recovered to 2023 levels.

ELS is a type of derivative-linked security that pays returns as long as the underlying asset, such as a stock index or individual stocks, moves within a predetermined range. It typically invests in up to three underlying assets. If the price of these underlying assets stays above a certain level, known as the 'knock-in' range, until maturity, investors receive both principal and returns. However, if the underlying asset falls below the knock-in threshold, investors can incur losses of up to 100%, making it a high-risk product. Unlike ETFs, which are listed on the stock market and can be traded at any time, ELS products have a fixed subscription period and incur substantial fees if redeemed early.

Previously, the sharp fall in the Hong Kong H Index in 2024 resulted in losses of up to 4.6 trillion won related to ELS, plunging the market into a downturn. Subsequently, most banks discontinued ELS sales following controversies over incomplete sales at bank branches, spreading anxiety among investors. Outstanding ELS balances plummeted from 35.7 trillion won in 2023 to as low as 9.9 trillion won by September 2023.

As a result, securities firms have recently overtaken banks as the main sellers of ELS. According to the Financial Supervisory Service, last year securities firms accounted for 41.9% of total ELS underwriting, surpassing banks at 30.2%. In 2023, banks’ share was as high as 63.8%, 3.6 times higher than the 17.6% held by securities firms at the time.

Most ELS sales by securities firms take place online, reducing the likelihood of incomplete sales compared to banks, which rely on in-branch, face-to-face transactions. According to the Financial Supervisory Service's investigation into Hong Kong H Index ELS, as of the end of December 2023, banks sold 90.6% of ELS through offline channels, while securities firms sold 87.3% through online channels. Geunhyuk Jang and Minkyoung Kwon, research fellows at the Korea Capital Market Institute, explained, "In online channels, customers choose products directly and automated systems handle the sales process, so the chances of legal violations are relatively low. However, in face-to-face channels, the process of employees recommending or explaining products to customers increases the likelihood of incomplete sales."

Thanks to the unprecedented boom in the domestic stock market, the underlying assets of ELS are also changing. According to SafeRO, over the past month, the ELS product with the largest issuance among those based on two underlying assets was one investing in 'Samsung Electronics - SK hynix' (128.8 billion won). A year ago during the same period, the top product was one investing in 'Nvidia - Tesla,' with an issuance of 128.8 billion won. An official at NH Investment & Securities explained, "There is a growing supply of products tracking the KOSPI single index and domestic stocks such as Samsung Electronics and SK hynix. To ease concerns stemming from the rising market, we are mainly offering 'low knock-in' products." 'Low knock-in' refers to products that set a lower threshold for potential losses.

The sales process is also being improved so that investors can better understand the structure of ELS products. NH Investment & Securities has introduced a 'Factor-Out' system that limits investments based on answers provided when registering investor information, such as intended investment period, the importance of returns and losses, and the level of loss tolerance. In addition, the company has strengthened product explanations by providing video materials for high-risk products and placing cautionary statements about high-risk financial investment products at the top of the product brochures.

The industry forecasts that the market for derivative-linked securities, including ELS, will continue to grow this year. Kyun Jeon, a research analyst at Samsung Securities, noted, "With global financial market uncertainties increasing, the boundaries between risky and safe assets are blurring, which could drive up demand for conditional return products such as derivative-linked securities. We expect the total issuance of derivative-linked securities to exceed 100 trillion won by 2026."

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