Korean manufacturers lack derivatives standards - KRX

Few South Korean corporates have adequate derivatives controls

Half of South Korea's manufacturers feel they get "satisfactory or positive results" when using derivatives and have shown "positive recognition of the need for continuous risk control". Yet 72.7% have no internal operational standards or limits for using such instruments, according to a survey published in December by the Seoul-based Korea Exchange (KRX).

The survey polled staff in charge of financial and capital operations at 740 manufacturing companies listed on the KRX on their opinion and use of derivatives.

Close to half (42.8%) feel derivatives are "high-risk products", and as for individual derivatives products, the level of dissatisfaction was highest for over-the-counter instruments, such as knock-in/knock-out (Kiko) contracts, at 37.1%. A major contributor to this view is likely to the big losses taken from Kiko currency hedges last year (see Asia Risk October 2008, page 9). Overseas futures and options products rated the lowest in terms of dissatisfaction, at 28.6%.

In addition, 37.4% of the responding companies said they normally make decisions on derivatives hedging without any separate strategy, "showing a lack of expertise and systematic management", says the report. JM.