FSC hikes controls on trading in options

Korean financial regulators will limit the number of stock-option contracts investors can invest in as part of an effort to avoid a repeat of the option-based crash in stock prices last November that was triggered by program trading.

The Financial Services Commission currently only restricts the amount of futures contracts investors can own. The FSC will also require pre-trade margin deposits for qualified institutional buyers in some cases.

The measures follow a 50-point plunge in the benchmark Kospi index during the last minute of trading on Nov. 11 when Deutsche Securities sold around 1.6 trillion won ($1.4 billion) worth of shares.

Under the new rules, positions in options and futures will be limited to a maximum of 10,000 contracts for institutional investors per day, while retail investors will be limited to 5,000 contracts.

Currently, such restrictions only apply to futures contracts, with institutional investors being limited to 7,500 contracts per day and retail investors 5,000 contracts.

“In the case of Deutsche Securities, they had around 43,000 options contracts on Nov. 11,” said an FSC official.

In addition, financial authorities have decided to require pre-trade margin deposits for qualified institutional investors with assets of less than 500 billion won or financial investment managers with funds totaling less than 1 trillion won.

Under the current rule, most qualified institutional investors are subject to a post-trade deposit of margins.

The financial authorities are still inspecting the suspicious trading of Korean shares through accounts held by Deutsche Securities and registered in Hong Kong and London on Nov. 11. “The result of the inspection is expected to come out around the end of February,” said an FSC official.

By Jung Jae-yoon [jyj222@joongang.co.kr]