Korean domestic banks expect the regulator to open the onshore credit derivatives market by year end. The move will be a boon for international firms as they are likely to structure and risk manage the products. B.J. Kim, executive v.p. at Dongwon Securities in Seoul, said the Ministry of Finance and Economy has indicated it will permit domestic securities houses to enter the credit derivatives market. Kim continued that once allowed, local houses including Dongwon will look to distribute products such as credit-linked notes structured by offshore entities.J.S. Kim, director of the foreign exchange and external debt division at the MOFE in Seoul, declined comment.
The move follows the opening of the onshore equity derivatives market last year, for which all major domestic securities firms now have operations (DW, 9/22). "Even in the equity market, securities houses have been depending on the foreign houses to create equity-linked notes. Initially, there will be a similar sort of joint-venture for credit derivatives," said Dongwon's Kim.
"The ABS market in Korea is already the largest in Asia outside of Japan, there's certainly the same potential for the development of the credit derivatives market onshore," said Brian Lazell, Asia-Pacific head of credit markets at BNP Paribas in Hong Kong. "We have no concrete plan but if we are allowed to do this we'll take a closer look," said Y.R. Nam, general manager of fixed income at LG Securities in Seoul.
"This will be a huge opportunity," said an official at JPMorgan, adding, "Right now only a handful of insurance companies can use credit products--if the securities houses can get involved it will be big."
