S, Korea's financial watchdog chief urges better handling of derivatives

[THE INVESTOR] Responding to the recent record-high issuance of risky financial derivatives, South Korea’s financial watchdog urged local brokerages to do a better job managing the tricky instrument.

“Securities companies should thoroughly assess risks (involved with derivative-linked securities) autonomously and remember the difficulties they faced when global stock markets plunged in the early part of this year,” said Jin Woong-sub, governor of the Financial Supervisory Service, while speaking at a meeting with trading risk heads of eight securities companies that have issued large volumes of derivatives-linked securities. 

The companies are NH Investment & Securities, Mirae Asset Daewoo, Shinhan Investment, Mirae Asset Securities, Samsung Securities,Korea Investment & Securities, Hyundai Securities and Daishin Securities.

“The financial soundness of brokerage houses can deteriorate if losses from hedge funds expand in accordance with market conditions here and overseas. They should be fully prepared in the fast-changing market environment,” he said. 

The governor’s remarks came as the volume of issuance has grown rapidly over the past several years, from 22.4 trillion won ($20.1 billion) in 2010 to 103.9 trillion won this year so far.

The Financial Supervisory Service and the Financial Services Commission are expected to announce regulations related to derivative sales, including the implementation of a pre-investment cooling-off period, next month.

By Park Han-na (hnpark@heraldcorp.com)