The Korea Stock Exchange will seek regulatory approval for warrants from the Financial Supervisory Commission next month and over-the-counter equity professionals are hoping to cash in on the exchange's move. "This has the potential to be absolutely enormous," said an equity derivatives head at an international house. "I expect over time Korea will eclipse Hong Kong as the world's largest warrant market." Turnover in the Hong Kong warrants market was USD75 billion last year.
Foreign players will benefit by providing over-the-counter options for local securities houses that have to delta hedge warrants positions, explained an equity head at a bulge bracket firm in Hong Kong. Although the warrants market will likely first be opened to domestic participants, who already hold equity derivative licensing, international players said they will jump in over time.
Market officials noted the strong trading mentality among retail investors in Korea should help the market take off. Such trading from 'moms and pops' in Korea has, for instance, brought about the world's most actively exchange-traded derivative, an option on the KOSPI index. "Leveraged products are well-received in Korea--I see no reason why warrants won't be a success," said Thorsten Michalik, director and Asian head of warrants at Deutsche Bank in Hong Kong.
Jong Chan Park, manager of listing services at the KSX in Seoul, told DW if the FSC gives the green light as expected, the market will be launched by year-end. He explained that the plan to start a warrant market has been in the works for two years, but was postponed by the merger of the stock exchange with the Korea Futures Exchange and the KOSDAQ Stock Market. That merger was completed at the onset of this year.
