‘Koreans need more ELW education’

“If trading normal stocks is like riding a normal car, then I would say that trading Equity-Linked Warrants (ELWs) is like driving a Ferrari,” said Simon Yung, director and head of warrants sales at Standard Chartered, based in Hong Kong.

Yung was speaking at a press conference in Yeouido, central Seoul, yesterday. His comments were made to illustrate the point that excessive investments in ELWs can be just as risky as driving a Ferrari at full speed.

“The possibility of running into an accident would be very high,” he said. “When the market is good, you can take more risks, but when the market is not so good, lower the leverage.”

Equity-Linked Warrants are a type of derivative that give a holder the right, but not the obligation, to buy or sell an underlying asset at a set price on or before an expiration date.

Yung pointed out that Korean investors tend to seek short-term profits from ELW investments, while investors in Hong Kong, which has an advanced ELW market, invest in ELWs relatively longer. According to SC Securities, the average ELW investment period for Korean investors stood at 1.9 months, while Hong Kong investors held onto ELWs for an average of 5.5 months as of May 20.

“Korean investors are nowadays taking too much risk,” said Yung, adding that it resembles the ELW market in Hong Kong about five or six years ago.

He added that education for investors is important. In the case of Hong Kong, he said that ELW issuers spent a great amount of time educating investors, and it helped develop Hong Kong’s ELW market.

The financial authorities recently implemented a regulation on ELW trading, forcing investors to put up a minimum initial deposit of 15 million won. There had been no initial deposit for ELW trading, but the regulator took action because of speculative trading.

Standard Chartered Securities Korea plans to educate investors on ELWs through online channels, along with in-person meetings.

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