Korea's IBK to enter equity derivatives business

The Industrial Bank of Korea (IBK) plans to enter the equity derivatives business in South Korea by the end of the year in anticipation of an increase in equity derivatives activity in the country, said Kyu-Bong Hwang, IBK's head of the derivatives engineering in Seoul.

The South Korean government opened the over-the-counter derivatives market to securities firms on July 1 this year - a move that is widely expected to boost equity derivatives trading in the country.

But Hwang said activity has been slow so far as securities firms await licences to trade, which he expects should be issued by the end of August. He added that securities firms have also yet to make full preparations for entry into the OTC derivatives business.

"Securities firms are not quite ready to offer these kinds of products yet, and will need some time to develop their systems, their people skills and their know-how," he said. "I think it will take a little bit more time for them to begin."

Currently, IBK is only involved in proprietary trading of equity derivatives, but plans to begin structuring products such as equity-linked notes, warrants and principal-protected notes with equity index options, by as early as September this year.

While there are plans to make new hires later in the year, the bank plans to take a wait-and-see approach to see how the market develops before making any moves. "We will form our game-plan according to market developments," said Hwang.

The business will be run through the existing seven-strong financial engineering team.