Korea’s exchanges to merge into single entity

The Korea Stock Exchange (KSE), the Korea Futures Exchange (Kofex) and Kosdaq are expected to merge to establish a single entity if a bill that is currently in congress is passed.

Under the Korea Exchange Establishment Act – which is expected to pass by early January – the country’s three existing exchanges will merge to form the Korea Exchange within a year’s time, say exchange officials. The new Korea Exchange will consist of five divisions: the stock and bond market division, which will trade stocks and bonds currently listed on the KSE; the Kosdaq division, housing stocks traded on Kosdaq; a derivatives division, consisting of Kofex activities including trading of Kospi 200 options and futures contracts; a management support division, which will be responsible for strategic planning, management and support function; and a market surveillance committee and division.

Ahead of the ultimate merger, all derivatives contracts currently traded on the KSE, including the Kospi 200 options and futures contracts and single stock options, will be transferred to Kofex by early January in a move that is in line with the country’s Futures Trading Act - enacted in December 1995 - which requires derivatives products to be listed on a derivatives exchange.

“When the Kospi 200 products were launched, there was no futures exchange in Korea. But the KSE had planned to list stock index products in their market at that time,” said a Kofex official. “So the government had allowed the KSE to list stock index products for a limited period of time and that time is over on December 31, 2003.”

As part of the move, a 22-strong staff from KSE will also be transferring to Kofex to form the Kospi 200 market operation team and Kospi 200 market management team while staff at Kofex will make up a customer service team.

As of October this year, the average trading volumes of the Kospi200 futures and options contracts were 290,722 contracts and 14,102,818 contracts, respectively. Meanwhile, the average trading volumes for the Kosdaq50 futures contracts – currently traded on Kofex – was 2,275 contracts for the same period.