Derivative Linked Securities
The Korea Securities Depository (KSD) announced on January 10 that the Derivative Linked Securities (DLS) including Derivative Linked Bonds (DLB) issuance in South Korea totaled an all-time high of 29.2307 trillion won (US$24.2 billion) last year, up 20.2% from a year ago.
“Last year, global financial markets slowed down to negatively affect Equity Linked Securities (ELS) investors while DLS demands rose in terms of alternative investment,” the Korea Securities Depository explained, adding, “In addition, a rise in oil prices resulted in the early redemption of some crude oil-based DLS, which, in turn, led to more and more interest in DLS.” The early redemption showed a significant increase in the second quarter in particular. It led to an increase in reinvestment and the quarterly issuance increased 31.5% from 6.1593 trillion won (US$5.1 billion) to 8.1019 trillion won (US$6.7 billion).
DLS that have indices as their underlying assets accounted for 25.5% of the total issuance while credit-based and interest rate-based ones took up 22.5% and 16.9%, respectively. Those based on forex rates grew a lot last year, from 300 million won (US$249.000) in the first quarter to 1.9 billion won (US$1.57 million) in Q2, 3 billion won (US$2.4 million) in Q3 and then to 12.8 billion won (US$10.6 million) in Q4.
Those based on private and public offering accounted for 83% and 17%, respectively. Last year, the latter decreased 5.5% compared to the previous year whereas the former increased 27.3%. Those guaranteeing 100% of the principal took up 45% and the rest were those guaranteeing 0% to less than 100% of it. The latter increased 35.5% from a year earlier.