The issuance of security derivatives in the first three months of this year stood at 13 trillion ($9.4 billion), down 1.9 trillion won from a year ago, according to government data, Friday. The financial products include equity-linked securities (ELS) and derivative linked-securities (DLS).
The average loss rate for ELS investors during the same period was -8.7%, a significant decrease of 15.9 percentage points compared to the previous year. Profits of brokerages from the issuance and operation of derivative securities plummeted to 46.5 billion won, a dramatic drop from 541.6 billion won the year before.Propelling the poor sector-wide performance was troubled ELS derivatives linked to the Hang Seng China Enterprises Index 추천
(HSCEI). This high-risk, high-volatility index includes stakes in 50 Chinese firms traded outside mainland China.The country’s five commercial lenders — KB Kookmin, Shinhan, Hana, Woori and NH NongHyup — and six brokerages face a redemption of a combined 15 trillion won this year. Over half, or 9 trillion won, was due before July.According to Financial Supervisory Service (FSS) data, ELS issuance stood at 8 trillion won, down 1.7 trillion won year-on-year and 23 trillion won quarter-on-quarter.The total value of ELS products without principal protection fell sharply to 4.1 trillion won in the first quarter, a significant drop from 7.5 trillion won in the fourth quarter of the previous year.A total of 14.4 trillion won of ELS was redeemed in the first three months, up 2.2 trillion won from the previous year.By the end of March, about 3.8 trillion won of HK-tied ELS products were at risk of losses after the HSCEI index fell to around 5,000 points, entering a “knock-in” phase. It refers to a type of barrier option where the down-and-in and up-and-in options are activated only when the underlying asset’s price crosses predefined barrier levels.Local investors incurred losses from the up-and-in variance because the price of the index did not hit the minimum agreed-upon barrier.The 5,000-point level is less than half of the HSCEI’s previous peak of over 12,200 in the first half of 2021. Most of the ELS products with a three-year maturity have reported losses exceeding 50 percent since late last year.DLS issuance in the first three months stood at 5 trillion won, down 200 billion won from a year ago.The balance of DLS issuance totaled 28.9 trillion won, a year-on-year decline of 2.4 trillion won.The FSS plans to strengthen monitoring of investor losses from the derivatives.