South Korean equity-linked securities (ELSs) will remain mostly unscathed following Korea Exchange's (KRX) expansion of daily price limits for stock and derivatives products.

Currently, most ELSs in the South Korean market feature indices rather than shares, and even when the daily price limits is expanded this will not suddenly drive up the range of price fluctuation for indices  to 30% which is now at 1% to 2%, said JongWon Kang, head of product development team at Hana Daetoo Securities.

“Furthermore, as share-related products are very minimal in the market in the current environment, the impact on ELSs will rather be limited,” he said.

KRX announced yesterday that the daily price limits for stocks, depository receipts, exchange-traded funds (ETFs), exchange-traded notes (ETNs) and beneficiary certificates of the Kospi and Kosdaq market will be expanded from ±15% to ±30% based on base price.

Additionally, derivatives products including Kospi 200 futures, Kospi 200 options, star index futures and sector index futures will gradually ascend from ±8% to ±15% and to ±20%, which will phase in five minutes after the price hits its upper or lower limit. Volatility index futures will also increase from ±30% to ±45% and lastly to ±60%; while single stock futures and options will start at ±10%, and increase to ±20% and to ±30% at most.

The daily price limit rule is aimed at stabilising the market price and contributing to overall stockmarket stabilisation, said the exchange in a statement, saying that the limits hindered trading opportunities surpassing the price limits as well as artificially restricted the potential price changes which cause delays in discovering price equilibrium and lead to speculative trading.

KRX said that it aims to realise the most efficient market through phasing in a gradual increase of daily price limits and strengthening the price discovery function as well as planning to create a market comprised of stocks that are appropriately valued through allowing dynamics in the market.

SRP data shows that products linked to baskets of shares have fallen in numbers since 2010, when sales of such products stood at KRW3.6tr (US$3.2bn). In 2014, sales of products linked to baskets of shares dropped by half to reach KRW1.8tr.

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