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Country Profile: South Korea's securities finance market

06 March 2017


South Korea is now the global number one emerging market in terms of revenues, loans and inventory

Read more: securities lending repo South Korea

South Korea equity data supplied by IHS Markit
  • South Korea is the third largest market in Asia Pacific
  • South Korea also performed well in 2016 as revenues jumped by 45% to $242m
  •   Average fees, already the highest in Asia, climbed a further 30% for the year to 4.3%
  • Balance also climbed, jumping 8% on average for the year to $5.5bn
  • Celltrion earned a massive $84m for beneficial owners, over $60m more than any other Korean stock
  • Inventories were flat at $82bn


Last year was another stand-out year for South Korea in terms of gross securities lending revenues produced, with 43% year-on-year growth from $165m to $236m. It established South Korea as the third largest market in Asia Pacific, just behind Hong Kong at $238m (down 34% in 2016 from $358m) and the number one market Japan at $294m (following its 50% increase from $196m). It is the sixth largest market globally.

South Korea remains an attractive trading destination, which has enjoyed increased demand over the last two years. "This has largely been driven by various regulatory changes aimed at facilitating increased market liquidity, as well as its exposure to a slowing China. Regulatory changes in other jurisdictions have also helped make South Korea a more attractive destination," says Dane Fannin head of capital markets, Asia Pacific, Northern Trust.

Under Korea’s system, the borrower and the lender choose the type of transaction and enter application details into the web-based Korean Securities Depository (KSD) securities borrowing and lending (SBL) system. A trade is matched when the application details of the lender and the borrower are met on issues, quantity and fee rates among other metrics. Securities are directly transferred by book-entry from the lender’s account to the borrower’s account. More than 4.9 billion shares were traded this way in 2016, according to the KSD, up from around 4.5 billion in 2015.

South Korea operates on a pseudo-CCP model in respect of the requirement for SBL to be intermediated by the KSD, Korea Securities Finance Corporation (KSFC) or an authorised local broker.

Darren Measures, executive director, product manager for agent lending, Asia Pacific, J.P.Morgan, says: "This hybrid model has proven to be a popular reference point for success in the market as developing markets in India, Philippines, Indonesia and Vietnam look to emulate an SBL process that gives control and transparency to the local exchange, while being open enough to attract international borrowers, agents and lenders into the market."

South Korea continues to be dominated by specials, with wide variability month-on-month. During 2016 trading values ranged KRW12.9trn to KRW23.8trn (average KRW15.82trn) and in terms of shares traded between 341 million shares to 579 million shares (average 413 million).

"Korea was the bright star of the middle of last year. Fees were going really high and there were lots of specials. The outstanding notional values were not biggest, but they were decent. It is still an interesting market with very attractive average fees – but the demand seems to have reduced," says Ariel Winiger, head of secured financing Asia Pacific, Societe Generale.


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