The offshore arm of the Korean securities house has debuted its first two derivative warrants linked to the single stock shares of HKEX and China Mobile.
Korea Investment & Securities Asia (KISA) has listed today (11 December) its first batch of derivative warrants (DWs) comprising two calls on the Stock Exchange of Hong Kong (HKEX).
Our issuer ticker will be displayed as ‘KS’, which we hope will represent ‘Korea's Standard’ - Jangwon Seo
The Korean issuer has made its first foray into the biggest market for structured products globally with two call DWs tracking the HKEX and China Mobile respectively, both of which are issued at HK$0.25/unit.
The KS-HKEX@EC2409A has a strike price of HK$288.88 due on 27 September 2024, while the KS-CMOB@EC2406A has a strike price of HK$70.28 due on 28 June 2024.
The offshore arm of the largest Korean securities house by net income based on third quarter earnings, which is fully owned by parent company Korea Investment Holdings, is the first Korean player to break into the listed structured product market in Hong Kong SAR.
“Our issuer ticker will be displayed as ‘KS’, which we hope will represent ‘Korea's Standard’,” Jangwon Seo (pictured), head of global derivatives at KISA, told SRP.
With the new listing, KIS also becomes the 18th active issuer in Hong Kong SAR’s DW market following the most recent additions: Huatai International which debuted in June and DBS Bank which entered this segment of the market in 2021.
Seo, who previously served as an equity derivatives trader in both the Seoul and Hong Kong branches of J.P. Morgan, joined KIS in 2014 and relocated to Hong Kong in 2018 to start leading a team of four building an offshore equity derivatives presence.
The team’s products first broke into Vietnam’s listed structured product market in June 2019. It then began preparing the expansion plan for Hong Kong SAR in late 2021 – the securities house obtained the structured product issuer licence from HKEX in September.
The timing coincides with a challenging year for the Hong Kong stock market, which has seen leverage products negatively impacted, with the number of DW listed and the total value traded dipping to their lowest levels since the end of 2019, according to Seo.
“As a derivative warrant is a bull product (‘call’ dominant ‘put’), the continuous decline of the overall stock market since 2021 seems to be the main factor,” he said, adding that despite the current environment there are opportunities ahead as he believes this is very good timing for KISA as a new player.
“If the stock market shows an upward trend next year, a rapid recovery could occur, particularly considering the current historical low activity in the derivative warrants market,” he said.
The decision to enter a new market stems from the company’s strong performance in the Korean and Vietnamese warrant markets. According to Seo, KIS’s issuance volume of equity-linked warrants (ELW), equivalent to DWs in Hong Kong SAR, has made up around 91% of the ELW market share in Korea, up from 89% in 2022.
As of 5 December, KIS has listed 2,367 warrants on the market, or 55% of the overall market, according to data from the Korea Exchange. Of these, 1,602 are linked to equities (single share), and the rest are linked to equities (single index). In comparison, KIS accounted for 35% of the overall market when it comes to warrants listed in 2022.
Seo also noted the house will focus on blue-chip stocks as the primary underlying for its DW range during the first three months and then expand to indices, with the plan to enter the callable bull/bear contracts (CBBC) market later on.
From a hedging strategy perspective, Seo anticipates “the potential for synergy through future collaborations with KISA” as the parent company has a position in Hong Kong underlying assets.
On HKEX, 487 DWs were newly-listed on HKEX in November, down 39% compared to the same time last year, the latest monthly report by the exchange shows. Average daily turnover recovered on a monthly basis, recording HKD5.4 billion in November, up 12.1% month-on-month.
“With several stocks witnessing significant daily plunges, there is growing demand for higher-leveraged products that target short-term rebounds of the underlying assets,” Seo said. “Additionally, we have noticed a trend of investors shifting towards higher strikes on calls, anticipating potential stock price recoveries.”
Seo also revealed the house’s potential plans to expand into the options market making and over-the-counter markets, finally creating a desk with a solid presence in the Hong Kong equity derivatives market.