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Korea financial services regulator safeguards Investors from heavy losses

Posted:Jan 08, 2024 17:43 Category: Asia , Fintech , Forex , Posted by Lea Hogg

Korea’s financial supervisory service (FSS) is launching an investigation into the sales of derivative products related to Chinese stocks listed on the Hong Kong exchange. The concern is that these products may expose investors to significant losses.

KB Kookmin Bank will be investigated

The FSS will be inspecting 12 local banks and brokerages, including KB Kookmin Bank and Korea Investment & Securities, starting today. These institutions have reportedly sold a total of 19.3 trillion won (US $14.66 billion) worth of equity-linked securities (ELS) products tracking Hong Kong’s H index since 2021.

The FSS has conducted a preliminary review and identified various issues, including inadequate management of the sales cap, failure to store relevant documents, and a policy to sell high-risk, high-level ELS products.

The inspection will cover these concerns, and investigations will take place concurrently with complaints filed against the two major sellers (KB Kookmin Bank and Korea Investment & Securities).

The FSS is particularly worried about potential heavy losses for investors, especially since around 79.6 percent of the outstanding amount (15.4 trillion won) is set to be redeemed in the first half of the current year, and poor performances by the H index may lead to substantial losses.

This situation underscores the importance of regulatory oversight in financial markets to ensure the protection of investors and the stability of the financial system.

Background

In October last year, Hong Kong Exchanges and Clearing (HKEX) witnessed remarkable success with the launch of its new mainland China equity derivatives, the China A50 Connect futures contract. In just four days after its debut, trading nearly quadrupled, signalling a strong demand from investors looking to hedge their exposure to shares listed on the world’s second-largest stock market. The contract’s exceptional start, surpassed the first-day trading value of any HKEX futures contract, suggests its potential to outpace even the successful Hang Seng Tech Index futures.

This development aligned with HKEX’s strategic positioning as the gateway to China, capitalizing on the surge in new listings and trading volumes.

 

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