S. Korea opens mini-sized derivatives market

South Korea opened a mini-sized futures and options market on Monday to offer investors wider choices for hedging and trading, hoping to revitalize the once-vibrant derivatives market with robust liquidity.

The Korea Exchange currently operates futures and options trading based on the KOSPI 200 index, a flagship index composed of the top 200 stocks by market capitalization. The new system offers contracts for as little as 25 million won ($21,900) and 5 million won for KOSPI 200 futures and KOSPI 200 options, respectively, one-fifth of the minimum price for the current contracts. On the first day of trading, 3,132 contracts of mini KOSPI 200 futures were traded. Retail investors and institutions each held 43.2 percent and 38.9 percent, while foreigners held 17.9 percent, the KRX said.

Mini KOSPI 200 options registered 6,814 contracts, with half of them traded by foreigners. Institutions and retail investors accounted for 26.8 percent and 22.7 percent of the turnover, respectively. The bourse operator expected the low-cost entry will attract more investors to the derivatives market to boost liquidity and improve the pricing mechanism.

The latest measure comes as the nation’s derivatives market has suffered a sharp downfall in its trading volume since stricter regulations were adopted in 2011 to limit small speculators in response to calls to cool the highly speculative market.  South Korea was the world’s leading derivatives market in 2011, but it fell to 12th place last year as tight access rules have driven investors to other markets, including the United States and Japan, according to the KRX.