This study presents methods of creating a market for trading security futures, especially stock index futures.
A future trade is a deal where a buyer or seller promises to purchase or sell a certain product based on standardized conditions at a predetermined future date and price via an exchange market. This type of trading has positive functions such as risk hedging, price discovery, increasing liquidity, smoothing supply and demand, while risks include net zero development, trade shifts, increasing price volatility, and the possibility of unfair trading
Major securities future markets include the Tokyo Stock Exchange that engages in stock index option trading, T-Bond futures trading, option trading, index options, Osaka Securities Exchange which is a market for index futures trading, Nikkei 225 index future-option trading, SIMEX which trades security derivatives such as commodity futures and financial futures/options, MSCI Hong Kong Index futures, the Chicago Board of Trade (which is the world’s largest market for trading grain futures trading and security futures trading), the Chicago Mercantile Exchange (mainly for trading livestock product futures), LIFFE (a comprehensive security future exchange market in the UK), and MATIF in France.
Compared to world-class security futures markets, Korea still remains at the design stage in creating its own future trading market. For the launching of a stock index future market and its successful management, the country needs to meet the following conditions:
- A large-scale spot market
- Price determination for marketable securities strictly based on market principles
- Efficient production and distribution of information
- Sufficient demand for futures trading
- High stability of the sport market
Based on the analysis of possible products to be introduced into the market, it is suggested that stock index options can be put on the market in soonest. In addition, stock options, stock index options, stock index future options, and bond futures and options can be brought to the market. In order to minimize the side effects occurring from the establishment of a stock index future market, the government should increase promotional activities to raise people’s awareness of the market, nurture professionals with relevant expertise, install a supervisory system to eradicate illegal trading, strengthen the relationship between the sport market and the futures market, enhance the functions of a liberalized stock market, and instill a sense of responsibility into investors.
We conducted an analysis of theoretical backgrounds of other countries’ with regards to stock exchange markets for stock index future trading and supervisory systems. The findings suggest that at this stage of creating a stock index future market, Korea should have the Korea Stock Exchange take charge of stock index future trading, while following with the supervisory system of the spot market. In addition, it is necessary to introduce an automatic block system, a price fluctuation mitigation system, and a price restriction system to minimize any disturbance in the market. To prevent irregular activities, it is also necessary to increase inspection, carefully determine stock indices for products subject to futures trading, and adopt a limit to position.
In particular, when deciding stock indexes for future trading, careful decisions should be made in an effort to enhance the liquidity level, consider the representation of the spot market, and to minimize error. As payment institutions take the core functions in operating a futures market, it would be desirable for the Korea Stock Exchange to directly handle payment for the time being, but in the long run, the government should consider establishing a separate corporation for the purpose. In the same context, member companies for future trading should be selected from securities companies. Selection criteria should be established and companies that satisfy the qualifications will be selected. Member companies with payment functions should undergo rigorous selection to gain public confidence.
증권선물시장의 개설방안(Methods of creating a security futures market)
주가지수선물시장을 중심으로(Centering on stock index futures)
서울 : 한국개발연구원
|Series Title; No||정책연구시리즈 / 94-21|
|Subject Country||South Korea(Asia and Pacific)|
|Subject||Economy < Others|
|Holding||KDI; KDI School|