KOREAN REPUBLIC: 7 Major Regulation Changes of KRX Markets in 2016

Tuesday January 5 2016

The Korean Exchange has announced the following changes to the KRX Markets:

Adjustment of tick size of the Mini KOSPI 200 Options (Derivatives Market Business Regulation)

Tick size of Mini KOSPI 200 Options was subdivided.

• Current tick size: 0.02p for under 10p, 0.10p for 10p or higher
• New tick size: 0.01p for under 3p, 0.02p for 3p or higher, 0.05p for 10p or higher

Change of the order of financial resources that are used to perform settlement, etc. (Membership Regulation)

The contribution amount to the joint compensation fund will be imposed according to the result of risk assessment of each member. In addition, to secure the stable operation of the clearing house, a guideline to impose additional contributions to the joint compensation fund for members will be established.

According to the amendment of the Financial Investment Services and Capital Markets Act (July 2015) and its Enforcement Decree, the settlement reserve of the KRX will be partially used prior to the use of the joint compensation fund of members if one of the members defaults.

Exemption of the securities transaction tax for market makers of the stock index derivatives for hedge trades (Restriction of special taxation act)

This exemption will be applied to the financial investment dealers that have entered into market making contracts with the KRX. Additionally, this exemption is only applied to the sales of stocks for the purpose of market making for derivative products which have stock indices as underlying assets

Increased Capital requirements of members for the stability of settlement (Membership Regulation, Derivatives Market Business Regulation)

The requirement for the equity capital of a clearing member is established differently based on the participating market and the range of settlement products, considering the risk level of each market. (December 31, 2015)

The credit risk limit will be based on the net capital of members and the required margin amount will be managed not to exceed the credit risk limit. (First half of 2016)

Introduction of market maker for low liquidity issues (KOSPI/KOSDAQ Business Regulation)

Among stocks with low trading volume and poor effective spread, stocks that have the transaction interval within 10 minutes. Those stocks to which the effects of market making are expected to be limited due to less distribution of shares and excessive volatility would be excluded even if the stocks are considered as low liquidity issues.

Modification of the trading method for super low liquidity issues (KOSPI/KOSDAQ Business Regulation)

Among low liquidity issues, stocks that have transaction interval with more than 10 minutes – considering the price stability and the liquidity improvement through concentration of quotes, the market would be converted into an individual competitive transaction scheme at a single price with the interval of 10 minutes.

Introduction of trade stability systems in stock markets (KOSPI / KOSDAQ / KONEX Business Regulation)

The Kill-Switch, the relief scheme for massive trading error and the (auxiliary) terminals for securities members are expected to be introduced.

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