Equity houses in Korea are pushing for regulators to change trading rules for the nascent warrants market in order to boost liquidity. The market has been attracting interest, but there is still controversy surrounding the level of participation from foreign houses.
The first batch of warrants was launched at the end of last year, and local firms have been using the instruments to offset their massive structured derivative positions, primarily equity-linked notes issued to retail clients. Currently, only local securities houses may issue paper while licensed foreign players can act as liquidity providers for outstanding contracts. A point of contention is that foreign liquidity providers may not trade in the last month of a warrant's maturity, due to concerns over market manipulation. Both local and international houses have been holding informal talks with the Financial Supervisory Service in order to ease the restrictions. "I sincerely hope the regulators will change their minds," said an equity trader at Woori Investment and Securities, adding, "This is impacting liquidity." An equity-derivatives head in Hong Kong said concerns of market manipulation by foreign houses are unwarranted, as trades made by liquidity providers are flagged and can be tracked.
Equity officials are hoping the regulation will be rescinded in the coming months, due to pressure from market participants. Douglas Kim, spokesman at the FSS in Seoul, did not return messages by press time.
