KOSPI200 Futures & Options Market - Current Status & Key Factors for Success

KOSPI200 Futures & Options Market- Current Status & Key Factors for Success

The First Seoul International Derivatives Securities Conference

August 27 28, 2003∼

Korea Stock Exchange

KOSPI200 FUTURES AND OPTIONS KOSPI200 FUTURES AND OPTIONS KOSPI200 FUTURES AND OPTIONS KOSPI200 FUTURESKOSPI200 FUTURES AND OPTIONS KOSPI200 FUTURES AND OPTIONS KOSPI200 FUTURES AND OPTIONS KOSPI200 FUTURES

KOSPI200 Futures & OptionsKOSPI200 Futures & Options

MarketMarket ActivitiesActivities


KOSPI after the Introduction of Derivatives

0

200

400

600

800

1000

1200

Jan. 1, 1996 July 31, 2003

Launching of KOSPI200

Futures(96.5.3)

Launching of KOSPI200

Options(97.7.7) Launching of Equity

Options(02.1.28)

Financial Crisis

11,620

15,240

18,604

25,398

26,884

34,388

35,752

55,845

75,438 193,275

NYMEX

ISE

AMEX

EURONEXT-Liffe, UK

CBOE

CBOT

EURONEXT-Paris

CME

EUREX, Frankfurt

KSE

Source: FIA Monthly Volume

Trading Volume of World Derivative Market(2002)

Unit : ten thousand contracts

2001 2002 2003 Avg. Daily Trading Volume : 128,058 175,689(+37%) 262,968(+ 50%) Avg. Daily Open Interests : 51,137 67,125(+31%) 86,366(+ 29%)

KOSPI 200 Index Futures

0

10,000

20,000

30,000

40,000

50,000

`96 `97 `98 `99 2000 2001 2002 2003.July

0

15,000

30,000

45,000

60,000

75,000

90,000Trading Volume Open Interests

Trading Volume(unit : thous. contracts)

Open Interests(unit : contracts)

1,245

1,423

2,292

2,635

2,758

2,782

4,225

6,323

12,451

15,040

OMX(Index)

Nikkei 225

FT-SE 100 Index

DAX

CAC 40 future 10 Euros

S&P 500 Index

KOSPI 200 INDEX

E-Mini NASDAQ 100

Dj Euro STOXX 50

E Mini S&P 500 Index


Trading Volume of World Stock Index Futures(June, 2003)

Unit : thousand contracts

KOSPI 200 Index Options

0

300

600

900

1,200

1,500

1,800

2,100

`97 `98 `99 2000 2001 2002 2003. July

0

1,500

3,000

4,500

6,000

7,500

9,000Trading Volume Open Interests

Trading Volume(unit : thous. contracts)

Open Interests(unit : thous.contracts)

2001 2002 2003 Avg. Daily Trading Vol.(thous. contracts) : 3,346 7,745(+131%) 10,859(+ 40%) Avg. Daily Open Interests(thous. contracts) : 2,037 3,100 (+52%) 4,006(+ 29%)

882

909

1,283

1,399

1,435

2,917

3,690

4,961

6,129

181,209

Dow Jones Industrial Index(DJX)

FT-SE 100 Index(ESX)

S&P 100 lndex(OEX)

Nikkei 225

All Share Index

S&P 500 lndex(SPX)

DAX

Dj Euro STOXX 50

CAC 40 Index

KOSPI200 INDEX


Trading Volume ofWorld Stock Index Options(June, 2003)

Unit : thousand contracts

KOSPI 200 Index & Historical Volatility

0

20

40

60

80

100

120

140

160

0

10

20

30

40

50

60

70

80KOSPI200 Index Historical Volatility

July 7, 1997 July 31, 2003

KOSPI200 Index (Unit:point) HV(90) (unit:%)

1997 1998 2002 Jan. July, 2003∼

KOSPI200 (end of the year) 42.34 64.94 79.87 91.52

HV(90) (average of the year)

30.1 55.3 34.2 31.6

Implied Volatilities of KOSPI200 Options

1997 1998 2002 Jan. July, 2003∼

Call 42.6 55.4 36.3 30.6

Put 60.5 64.8 38.6 35.7

Both 47.7 59.0 37.3 33.1

0

20

40

60

80

100

120

140

160

180

200IV(unit:%)

Both Call Put

July 7, 1997 July 31, 2003

Average Premium of KOSPI200 Options

0

1

2

3

4

5

6

7

8

9(unit : point)

Both Call Put

July 7, 1997 July 31, 2003

1997 1998 2002 Jan. July, 2003∼

Call 0.42 0.79 0.67 0.57

Put 1.90 0.57 0.65 0.55

Both 0.69 0.69 0.66 0.56

Trading Weight by Types of Investors in Futures Market (Jan. ∼July 2

003)

Individuals60%

Institutional6%

Foreigners14%

SecuritiesCompanies

20%

Trading Weight by Types of Investors in Options Market (Jan. ∼July 2

003)

Individuals55%

Institutional2%

Foreigners15%

SecuritiesCompanies

28%

Trading Weights by Exercise Prices

OTM ATM±1 ITM

July 7, 1997∼ 79.3 18.8 2.0

1998 57.6 41.4 1.0

1999 73.6 25.0 1.5

2000 74.7 23.9 1.4

2001 59.8 39.7 0.5

2002 71.7 27.7 0.6

∼July 31, 2003 55.7 43.9 0.4

(Unit : %)

Trading Weights by Investors & Exercise Prices

OTM ATM±1 ITM

Individuals 56.8 43.0 0.2

Institutions 65.1 34.1 0.8

Foreigners 61.8 36.7 1.5

Securities 50.6 49.2 0.2

(Jan. 2003 ∼ July / Unit : %)

Circuit Breakers & Side Car

(Unit : Frequency)

1996 1997 1998 1999 2000 2001 2002

C/B 1 49 49 5 7 1 0

S/C 3 120 183 34 52 15 5

Program Trading

Arbitrage Non-Arbitrage

Buy Sell Buy Sell

July, 1997 ∼Value 245,031 323,999 131,944 125,399

Weight 0.16 0.22 0.09 0.08

1998Value 2,364,836 1,986,701 1,312,275 1,084,725

Weight 0.61 0.52 0.34 0.28

1999Value 10,538,680 9,903,503 9,499,376 8,613,736

Weight 0.61 0.57 0.55 0.50

2000Value 11,672,283 12,537,471 10,005,272 12,298,234

Weight 0.93 1.00 0.80 0.98

2001Value 9,771,389 9,383,112 13,523,193 14,188,656

Weight 0.99 0.95 1.38 1.44

2002Value 18,394,779 18,287,675 21,506,118 20,921,325

Weight 1.24 1.23 1.44 1.41

∼ July, 2003Value 13,027,344 12,552,731 7,770,181 8,385,488

Weight 2.15 2.07 1.28 1.38

Weight = Trading Value of Program Trading / Trading Value of Stock Market * 100

(Unit : millions won, %)

% Change of Underlying Index at Expiration

-3

-2

-1

0

1

2

3

4

97/9 98/3 98/9 99/3 99/9 00/3 00/9 01/3 01/9 02/3 02/9 03/3

(Unit : %)

Status of Underlying Index at Expiration

Year

# of KOSPI200 fluctuation more than 1 %

Total Up Down

1996 97∼ 1(11) - 1

1998 3(12) 1 2

1999 5(12) 1 4

2000 5(12) 3 2

2001 4(12) 2 2

2002 5(12) 2 3

2003(1 7)∼ 4(7) 1 3

( ) : the number of KOSPI200 futures and options expiration days during the period

Ordering Activity at Futures Market

Normal Corrected Cancel

Freq Cont Freq Cont Freq Cont

May ∼Dec. 2001

44,997 366,426 9,253 42,671 8,933 87,450

2002 69,493 461,107 14,943 75,628 14,222 105,545

Jan. July∼, 2003

90,422 707,423 21,672 132,091 23,303 179,975

(Unit : # of cont/order, /day)

Ordering Activity at Options Market

Normal Corrected Cancel

Freq Cont Freq Cont Freq Cont

May ∼Dec. 2001

151,896 15,370,992 47,290 3,618,128 35,098 6,111,811

2002 338,045 37,104,458 91,434 6,834,837 92,565 19,967,661

Jan. July∼, 2003

385,976 42,344,537 102,318 8,209,143 107,074 19,180,501

(Unit : # of cont/order, /day)

Weight by Order Types at Futures Market

Limit Order97.69%

Best Order0.08%

ConditionalOrder0.08%

Market Order2.15%

August 1 20, 2003∼

Weight by Order Types at Options Market

Limit Order99.19%

Best Order0.11%

ConditionalOrder0.06%Market Order

0.64%

August 1 20, 2003∼

The Number of Active Accounts

Futures Options Both

Individuals 5,975 14,870 18,902

Foreigners 70 42 80

Total 6,582 15,192 19,711

(January 1, 2003 ∼ July 31, averaged)


Key Factors for Success ofKey Factors for Success ofKOSPI200 Futures &Options MarketKOSPI200 Futures &Options Market


- Financial crisis

o Investors realized importance of risk and usefulness of

derivative products as risk management vehicles

o 1997 ~ 1999: KOSPI: 800 280 1,000

- Low interest rate

o To recover from the financial crisis

o A large sum of low-cost capital floating around

- High volatility in underlying cash market

o Monthly volatility σ: 9%

Economic Environment

- Many small funds

o Number of funds : 4,926

o Avg. asset : 20 million U$

- Low credibility

- Pension fund not developed yet

Active participation from individual investors

Fund Industry in Korea

- Trading mechanism

o No specialists, no market makers

- Their role limited to order routing

- Well developed Home Trading Systems

o Fierce competition to attract more customers

Easy & convenient access for investors

Securities Companies Practices in Korea

- Nationwide use of high-speed band Internet

o Nationwide Internet network cable installation

o PC Bang, Trading Center(Bang)

- Fast Home Trading System with online real-time information

o Making it easier for individual investors to trade options

o About 52% of orders are through cyber trading

- Spreading websites providing market analysis and research

Rapid Increase of Internet Users

- Relatively small contract size

o Enabling individual investors to trade more contracts with the same amount of money

o $47 (Average option premium : 0.56pt, $1= ￦ 1,200)

-Transaction fee based on trading value

o Reducing cost of trading KOSPI200 options contracts, esp OTM

options compared with other products with transaction fees based on the number of contracts traded

Characteristics of the KOSPI 200 Options

- Philosophy of ‘One Market’

- Timely & Efficient Management

o Circuit breakers

o Side cars

- Facilitation of Investment

o Matching with the rules & regulations of the underlying

market based on ‘One Market’ philosophy

Integrated Management ofUnderlying Cash and Derivatives Market

- Sufficient ‘Mock Trading’ period to stabilize the system

o Stress testing over 5 months

o Opportunity to educate and train staffs and investors

- Timely adoption if rules &regulations are revised

- Prompt response to investors’ needs

- Attaining ‘cost efficiency’

o Saving the cost of development & maintenance

In-house Trading System

- Settlement under the responsibility of the KSE

o Central counterparty

- Conservative margin system

Ensuring Settlement

- Publication of pamphlets

- Newspapers articles and TV programs

- Seminars & explanatory meetings

- On-the-job training

Emphasis on Education & Advertisement

Thank You !

KOSPI200 Futures & Options Market - Current Status & Key Factors for Success

Documents

Transcript of KOSPI200 Futures & Options Market - Current Status & Key Factors for Success