KOSPI 200 Option’s Market Reaches Maturity - Market Integrity Has Greatly Improved

Since the listing on July 7, 1997, the trading volume of KOSPI 200 Options continued to increase before the trend turned around and began to decline in 2003. This downward trend continued in 2005, indicating that the market has reached a stage of maturity
The KOSPI 200 Options market has experienced phenomenal growth since its opening and has remained No. 1 in the world as a single contract in terms of trading volume, with a 28% share of the global derivatives trading volume.
Over the past 8 years, the KOSPI 200 Options market has achieved remarkable success in quality as well as qualitative expansion
The solid options market has not only offered tools for risk hedging against the spot market but has also served as a catalyst for the development of financial engineering, thereby facilitating the development of new financial products and providing a driving force for Korea to emerge as a financial hub for Northeast Asia
While the market share of individual investors who have maintained market dominance since the listing has declined significantly, foreigners and securities companies have consistently expanded their market position, contributing to greatly enhanced market integrity
Market share of retail investors: 67.6%(1998) » 66.0%(2001) » 48.2%(2004) » 45.1%(H1 2005)
The number of active accounts in the options market has continued to decrease since 2003 as the number of accounts owned by retail investors fell
Depending on the exercise price, the trading volume of issues near ATM price, rather than OTM issues, is increasing as price volatility decreases. Consequently, individuals are becoming less speculative.
Recently, however, the trading volume has been falling more quickly than expected as the volatility of the spot market falls, more alternative investment instruments including indirect investment products become available, and individual investors reduce their position. Effective measures need to be taken in order to deal with the declining trading volume.
Efforts need to be made to encourage institutional investors such as investment trust companies with a low market share to expand their position
- Currently, institutional investors have a mere 2.2% market share.
- Self-regulation of the market should be strengthened by eliminating unnecessary regulations.
Various products that meet the needs of the market users should be provided, thereby lessening dependency on KOSPI 200 Options.