Issuance in Q3 Reaches 19.8 Trillion Won, Redemptions Total 16.3 Trillion Won
This year, as domestic and international stock markets have risen, the investment environment for equity-linked securities (ELS) has improved, resulting in the outstanding balance of derivative-linked securities (ELS and DLS) issued by securities companies in the third quarter approaching 90 trillion won.
According to the 'Status of Issuance and Management of Derivative-Linked Securities by Securities Companies in the Third Quarter' released by the Financial Supervisory Service on the 31st, the outstanding balance as of the end of September stood at 89.6 trillion won, an increase of 2.4 trillion won compared to the end of June.
The amount of derivative-linked securities issued in the third quarter was 19.8 trillion won, exceeding the redemption amount of 16.3 trillion won. These figures represent an increase of 5.7 trillion won and 900 billion won, respectively, compared to the same period last year.
In particular, as demand for ELS investment increased due to the rise in domestic and international stock markets, the amount of ELS issued reached 12.8 trillion won, up 3.4 trillion won from the same period last year. Both principal-protected (7 trillion won) and non-principal-protected (5.7 trillion won) types expanded compared to the previous year.
By major underlying assets, the issuance of index-type ELS amounted to 6.6 trillion won, an increase of 900 billion won from a year earlier, but its share dropped by 8.8 percentage points to 51.5%. During the same period, the issuance of single-stock-type ELS increased by 2.2 trillion won to 5.7 trillion won, accounting for 44.4% of the total.
By major underlying assets, the issuance amounts were as follows: KOSPI200 (5.6 trillion won), S&P500 (4.1 trillion won), Euro Stoxx 50 (3.6 trillion won), and Nikkei 225 (1.4 trillion won). A Financial Supervisory Service official stated, "As the domestic and U.S. stock markets have continued to rise, investment demand for ELS based on KOSPI200 and S&P500 has increased."
Among ELS issued in the third quarter, public offerings accounted for 5.2 trillion won (40.3%), followed by bank trusts at 4.2 trillion won (33.1%). Since the suspension of ELS sales by banks after the Hong Kong H Index incident in the first half of last year, the share of public offerings (by securities companies) has been on the rise.
Total ELS redemptions in the third quarter amounted to 11.3 trillion won, up 200 billion won from the previous year. Due to the rise in domestic and international stock markets, early redemptions increased by 2.1 trillion won year-on-year, while maturity redemptions decreased by 1.9 trillion won due to the base effect from the concentration of H Index-based ELS in the previous year.
The outstanding balance of ELS as of the end of September was 54.2 trillion won, up 600 billion won from the end of June. The principal-protected ELS balance stood at 42.3 trillion won, while the non-principal-protected ELS balance was 11.9 trillion won.
Additionally, the amount of derivative-linked securities (DLS) issued in the third quarter was 7.1 trillion won, an increase of 2.3 trillion won from the same period last year and 600 billion won from the previous quarter. The principal-protected type reached 5.8 trillion won, up 2 trillion won from a year earlier, attributed to increased investment demand seeking excess returns over deposit products. DLS redemptions amounted to 5 trillion won, up 700 billion won year-on-year and 1 trillion won quarter-on-quarter, with the outstanding balance recorded at 35.4 trillion won.
As of the end of September, of the 89.6 trillion won in outstanding derivative-linked securities, the amount hedged internally was confirmed at 60.3 trillion won, an increase of 8.5 trillion won from a year earlier. The ratio was 67.3%. The internally hedged amount for ELS was 43.3 trillion won.
The valuation of assets operated with funds raised from the issuance of derivative-linked securities (hedging assets) stood at 93.1 trillion won, exceeding the liability valuation (9 trillion won) by 3.1 trillion won. Among hedging assets, bonds accounted for the largest share at 82.4 trillion won (88.5%), followed by deposits and savings at 5.2 trillion won (5.6%), and cash at 4.5 trillion won (4.9%).
The annual investment return rate for ELS in the third quarter was 5.4%, and for DLS it was 2.2%, up 4.6 percentage points and 0.2 percentage points, respectively, from a year earlier. This improvement in ELS investment returns is attributed to the fact that most H Index-based ELS were redeemed during the first to third quarters of 2024.
Securities companies' profits from issuance and management of derivative-linked securities recorded 83.3 billion won, down 225 billion won from the previous year. A Financial Supervisory Service official explained, "Although operating profits from hedging assets (2 trillion won) increased due to the rise in issuance amounts driven by domestic and international stock market gains in the third quarter, net profit decreased due to valuation and redemption losses arising from the increased expected payments to investors."
The Financial Supervisory Service plans to strengthen monitoring of potential investor losses, expecting that if the current trend of rising domestic and international stock markets continues, the scale of ELS issuance will continue to increase for the time being.
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
