S. Korea to strengthen monitoring of derivatives market

SEOUL, Dec. 21 (Yonhap) -- South Korea's financial watchdog said Sunday it plans to beef up its supervision of sales of derivatives by financial firms and strengthen investor protection amid the global financial turbulence.
South Korea plans to strengthen its monitoring system of the derivatives market
by setting up databases and reinforcing information analysis. The watchdog will
also require financial companies to sell customer-tailored derivatives after
classifying investors in accordance with their experience and investment
propensity, according to the Financial Services Commission (FSC).
The FSC said it will make efforts to prevent trading of derivatives products from
posing systemic risks to financial firms by improving regulation of the
over-the-counter derivatives market.
"It is necessary to strengthen a supervisory system in order to beef up
competitiveness in the Korean capital market," the FSC said.
The move came as the subprime mortgage rout in the United States and the collapse
of Lehman Brothers Holdings Inc. have sent shockwaves through the global market.
On the domestic front, more of South Korea's smaller firms have been suffering
from losses related to currency options known as "knock-in knock-out (KIKO)"
contracts, as the local currency's weakness against the dollar has snowballed
their losses.
South Korea is set to implement the new law on capital market deregulation in
February 2009. The law is designed to break down barriers separating the
securities, futures and asset management sectors and allow brokerage houses to
play a bigger role in the financial sector.
The FSC said it plans to complete its improvement in areas related to investor
protection by the first half of next year.
sooyeon@yna.co.kr
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