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Current Status and Future Outlook of Korean SLB Market

This report discusses the current state and future prospects of the Securities Lending and Borrowing (SLB) market in Korea. It covers the history, growth, characteristics, and development of the SLB market, as well as the role of intermediaries, regulations, and the active participation of foreigners. It also explores the potential for growth and future outlook of the SLB market.

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Current Status and Future Outlook of Korean SLB Market

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  1. Current Status and Future Outlook of Korean SLB Market- for New Service Initiative Task Force session June 28th, 2006 Korea Securities Depository

  2. Growth of SLB Market Characteristics of SLB Market CSD as SLB intermediary Development since ACG9 Future Outlook of SLB Market Outline 1

  3. History KSD is authorized as SLB intermediary (Aug. 1996) Foreign Investors are allowed in SLB (July 1998) KSFC (July 2000) and Securities companies (Sept. 2000) are allowed to act as SLB intermediary Foreigner’s borrowing limit expanded to KRW 10 billion (July 2005) Approval system to ‘Foreigner’s securities borrowing over KRW 10 billion’ was changed to ‘Prior-reporting System’ (Jan. 2006) Growth of SLB Market (1) 2

  4. year 96 97 98 99 00 01 02 03 04 05 061) trading amount 2 100 213 146 54 52 157 276 592 863 582 Growth of SLB Market (2) • Size of SLB Transactions (Unit: 100 million shs) 1)From Jan. through May for 2006 • Foreigner’s SLB Transactions1) (Unit: million shs, KRW billion) foreigners total foreigner's ratio volume value volume value volume value 2003 123,322 4,044 219,179 6,203 56% 65% 2004 242,310 8,281 425,305 12,872 57% 64% 2005 483,743 14,213 589,129 17,136 82% 83% 20062) 384,109 10,990 431,548 12,712 89% 86% 1)KSD’s SLB statistics only 2)From Jan. through May for 2006 3

  5. SLB through Intermediaries Blind Transaction Active Participation of Foreigners Tight Regulation Characteristics of SLB Market (1) 4

  6. Characteristics of SLB Market (2) • SLB through Intermediaries • KSD, Securities Companies &KSFC act as intermediaries • Foreigners should use intermediaries to SLB in Korea • Blind Transaction • Bid-Offer Transaction taking roots • Cost efficient • Easy to find the lender • Recall from lenders • Not vis-à-vis contract • Not reluctant to recall 5

  7. Characteristics of SLB Market (3) • Active Participation of Foreigners • Borrower oriented market • High ratio of foreigners SLB trade • Foreign investment ratio in Korean Stock Market: 37.17% • SLB ratio of foreigner : over 80% • Tight regulation • FOL • Foreigner’s SLB of FOL names are limited • Prior-report to BOK • When borrow from onshore over 10billion • Complicate reporting procedure • IRC etc. 6

  8. CSD as SLB Intermediary • Strength • Corporate action service for lent shares • Weakness • Tight internal regulation • Limited risk taking • Collateral ratio vs. Credit line • etc. 7

  9. F/X deregulation Borrowing of funds and banks are allowed Completion of SLB consulting to TSD Development since ACG9 (1) 8

  10. Development since ACG9 (2) • F/X Deregulation • Prior-reporting system • Foreigners who want to borrow more than KRW10 billion from onshore lender should submit prior report to BOK • Changed from ‘approval system’ to ‘report system’ • Way to market opening • F/X liberalization plan (2009) • Borrowing of funds and bank are allowed • Financial institutions are allowed Securities Borrowing • Limited purpose • Risk hedge, fail-cover, arbitrage 9

  11. Development since ACG9 (3) • Completion of SLB consulting to TSD • Dispatch ‘System Consulting Team’ to TSD • From July 2005 to March 2006, 6 members • SLB & Repo system consulting • System architecture design, system technical design, source coding, test & training • Scope of system consulting 10

  12. SLB liberalization F/X liberalization is under way Prior-reporting system will be abolished in 2009 Foreign currency as collateral for SLB High Potential for Growth Funds & Banks SLB From July 2006, funds & banks will join SLB as borrower Aggregate value of funds : KRW 137 trillion SLB amount: 1% of Securities Trading Amount Future Outlook of SLB Market 11

  13. Thank You

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