Morgan Stanley plans to set up a fixed income derivatives operation in Korea and will likely start trading in the new year and Citibank is considering offering won-denominated credit-default swaps for the first time in Korea next year. Morgan Stanley is planning to apply for licenses that will permit it to trade won-denominated fixed income products onshore, such as interest rate derivatives, according to officials familiar with the move. Citibank already has a won fixed income desk, said S.W. Hwang, head of derivatives marketing in Seoul, adding, "We're now looking to see if there's adequate demand for local currency credit derivatives."
Morgan Stanley, which expects to hire traders and marketers for the effort, currently handles interest rate, fixed income and foreign exchange trading for the offshore Korean market out of Hong Kong. Jia Lin Liu, head of fixed income in Hong Kong, did not return calls and Nick Footitt, spokesman, declined comment.
An official in Citibank's Singapore branch said that as the bank has sold credit-linked deposits in won, default-swaps are the next logical step. Citi has offered dollar-denominated credit-default swaps in Korea via Salomon Smith Barney in Hong Kong but officials explained that local currency products would be handled out of Citi's Singapore desk. Hwang continued that for credit products in Korea, current regulations require the Bank of Korea to be notified on a case-by-case basis.
Separately, Korean securities house Dongwon Securities has hired B.J. Kim, head of Korea credit markets at JPMorgan in Seoul, in the new position of executive v.p. with responsibility for establishing a derivatives operation. "This is a new business for them," said Kim. Kim will handle the day-to-day operations for Dongwon and report directly to Young Kyu Kim, president, who did not return calls. Dongwon will look to handle equity, foreign exchange and interest rate derivatives and hopes to receive trading licenses next month. For the effort, the firm will look to hire both marketers and traders, initially two or three staff to kick-start the desk.
"We'll be able to build a great niche market," said B.J. Kim, adding that in Korea, foreign houses have a limited credit appetite--meaning there is fierce competition for business from larger highly rated domestic companies and lower-rated corporates tend to be ignored.
At JPMorgan, Kim reported to Chris Nicholas, Asian head of credit markets in Hong Kong. Nicholas did not respond to messages.
The moves come on the heels of several other firms, including Barclays Capital, Lehman Brothers and most recently Merrill Lynch, beefing up operations in Korea on the back of relaxed regulations (DW, 10/28).