In the first quarter of this year, the issuance of derivative-linked securities and bonds by domestic securities firms approached 20 trillion won, driven by a recovery in investor sentiment. Notably, the demand for principal-protected products, such as ELBs, significantly contributed to the increase in issuance of derivative-linked bonds.
According to a report released by the Financial Supervisory Service on July 8, the total issuance of derivative-linked securities and bonds in the first quarter reached 19.6 trillion won, an increase of 3.8 trillion won (24.1%) compared to the same period last year.
By product type, the issuance of derivative-linked securities (ELS and DLS) amounted to 6.7 trillion won, up 1 trillion won (17.5%) from a year earlier. Of this, ELS accounted for 5.5 trillion won, while DLS totaled 1.2 trillion won. The issuance of derivative-linked bonds (ELB and DLB) rose to 12.9 trillion won, reflecting a 2.8 trillion won (27.7%) increase year-on-year, driven by heightened demand for ELBs.
During the same period, the total redemption amount reached 20.6 trillion won, marking a significant increase of 7.9 trillion won (62.2%) compared to the previous year. The redemptions included 7.1 trillion won from derivative-linked securities and 13.5 trillion won from derivative-linked bonds.
As of the end of the first quarter, the outstanding balance of derivative-linked securities and bonds stood at 93.5 trillion won, a decrease of 1.6 trillion won (1.7%) from the end of last year. The outstanding balance comprised 17 trillion won in derivative-linked securities and 76.5 trillion won in derivative-linked bonds.
In terms of underlying assets for ELS, index-type assets accounted for the largest share at 3.8 trillion won, followed by individual stocks at 1.5 trillion won and mixed types at 200 billion won. The proportion of products based on the KOSPI 200 index increased from 70.1% in the first quarter of last year to 78.7% this year, influenced by the rise in the domestic stock market.
Among individual stock ELS, notable issuances included products based on Tesla (800 billion won), Palantir (700 billion won), Samsung Electronics (400 billion won), and SK Hynix (300 billion won). In contrast, individual stock ELBs totaled 5.1 trillion won, showing a different trend compared to ELS.
By product structure, Knock-In and No Knock-In types were similar in issuance, with 3.3 trillion won (49.3%) and 3.4 trillion won (50.7%), respectively. However, within the Knock-In category, low Knock-In products with barriers below 50% accounted for 97% of the total.
In terms of underwriting, securities firms led with 3.5 trillion won for derivative-linked securities, followed by banks with 900 billion won and asset management companies with 900 billion won. For derivative-linked bonds, securities firms underwrote 4.9 trillion won, banks 3.5 trillion won, and retirement funds 2.5 trillion won. The share of securities firms in the overall underwriting of derivative-linked securities and bonds increased from 36.1% last year to 42.9% this year, a rise of 6.8 percentage points.
The annualized investment return for products that were early redeemed or matured in the first quarter was 6.8% for derivative-linked securities, slightly up from 6.6% in the same period last year. In contrast, the return for derivative-linked bonds fell to 3.5%, down from 4.4% during the same timeframe. The returns by type were 8.3% for ELS, 4.5% for DLS, 3.7% for ELB, and 3.2% for DLB.
The Financial Supervisory Service cautioned that derivative-linked securities can incur principal losses, emphasizing that the greater the number of underlying assets or the higher the proposed returns, the greater the risk. They also noted that while derivative-linked bonds are principal-protected products, investors may not recover their principal and interest if the issuing securities firm goes bankrupt, and early redemption could lead to principal losses.
The Financial Supervisory Service stated, "We plan to continuously monitor the issuance status and risk factors of derivative-linked securities and bonds, while guiding financial companies to ensure thorough risk disclosures to investors."
* This article has been translated by AI.
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