Sales of derivatives-tied securities drop in 2021

Sales of derivatives-linked securities in South Korea decreased in 2021 largely as investors shunned the risky investment tools amid the tightened regulations, data showed Friday.

The combined value of equity-linked securities (ELS) and derivatives-linked securities (DLS) came to 84.7 trillion won ($72.1 billion) last year, down 4.3 trillion won from 2020, according to the data from the Financial Supervisory Service (FSS).

The end-2021 figure marks the lowest since 2014, when the comparable number was 84.1 trillion won.

The ELS and DLS are structured to track the performance of underlying assets, usually a combination of different equities or derivatives. These high-yield products do not guarantee the principal and therefore are preferred by investors of aggressive appetite for risk.

The issuance of ELS, or hybrid debt securities whose returns are determined by the performance of underlying equities, increased by 3.2 trillion won to 72.2 trillion won in 2021 from a year ago, the regulator said.

The issuance of DLS, which track interest rates, currency values and other underlying assets, stood at 17 trillion won in 2021, down 5.3 trillion won from a year ago.

The FSS said the demand for DLS remained low in the wake of the misselling fiasco of derivatives linked to overseas interest rates that caused social controversy in 2019.

Regulators tightened regulations after punishing top-tier banks for selling off massive amounts of complicated DLS products to ordinary customers without much knowledge about their risks.

The financial watchdog said it will continue to monitor the sales of derivative-tied securities, citing possible volatility from the Russia-Ukraine war and the US central bank's move to tighten its monetary policies. (Yonhap)