Korea derivatives trading volumes almost double in first quarter

South Korea saw a 93.5% increase in the notional volume of derivatives trading in the first quarter of 2006. In January to March, 12,907 trillion won ($13.7 trillion) were traded, compared with 6,671 trillion won in the corresponding period last year.

Most notable was the volume of exchange-traded derivatives, which more than doubled to 11,829 trillion won in the first quarter from 5,709 trillion last year, largely due to 5,528 trillion won traded in Korea’s Kospi 200 options.

Korea is the most active market in the world for exchange-traded derivatives by number of contracts traded in 2005, said domestic regulator the Financial Supervisory Service (FSS).

Over-the-counter derivatives volumes grew more modestly in the first quarter, increasing by 12.1% over first-quarter 2005 to 1,078 trillion won. This was largely a result of an increase in interest rate swaps, of which traded volumes increased by 94.2% to 200 trillion won.

The total notional amount of OTC derivatives traded in Korea is small compared with other advanced markets, said the FSS: just 0.7% of the total value of Bank for International Settlement markets.

Securities companies were the most active participants in the derivatives market, with a total turnover among them of 11,304 trillion won, representing 87.6% of total exchange and OTC trading for the period.

With 1,377 trillion won in turnover, banks accounted for 10.7% of the market. But in terms of derivatives outstanding, banks accounted for 1,869 trillion won out of 1,986 trillion won in the quarter, or 94.1% of the market.

Banks and securities companies reported 384.8 billion won in returns from derivatives trading for the first quarter, an increase of 44.8% from first-quarter 2005. The FSS attributes much of this gain to the 96.6 billion won leap of in returns at securities houses from equity-linked securities, including warrants.

Securities companies were most active in trading stock index options; while banks focused on OTC derivatives, said the FSS.