KOSPI 200 Goes Global

Korea Exchange concludes LOI with CME for KOSPI 200 shares to trade on Globex

Korea Exchange said KOSPI 200 derivative products will be traded globally during evening hours from the second half of next year
The Korea Exchange (KRX) and the Chicago Mercantile Exchange (CME) signed a letter of intent (LOI) Oct. 24 to list KOSPI 200 derivative products futures on Globex, operated by the CME, which is open 24 hours a day. KRX President Lee Young-tak signed the instrument along with Craig Donohue, CEO of the CME Group.
Present at the signing was Deputy Prime Minister and Minister of Finance and Economy Kwon O-kyu to offer his congratulations. He was in the United States to attend the WorldBank/IMF annual convention as well as to promote the Korea-U.S. Free Trade Agreement for approval by the U.S. Congress. CME Group Chairman Terrence Duffy and CME Group Chairman Emeritus Leo Melamed were also present to show the great importance of the deal.
The CME Group was launched with the merger of the Chicago Mercantile Exchange and the Chicago Board of Trade (CBOT) to become one of the world's largest futures trading exchanges with an annual turnover amounting to $2.2 billion.
The purpose of listing the KOSPI 200 on the CME is to make trading possible when the exchange is closed at night through Globex, which is in operation 24 hours a day, and to make the shares on the KOSPI accessible to international investors. The night trading hours are from 5 p.m. to 6 a.m. (2 a.m. to 3 p.m. Chicago time).
The CME will be responsible for transactions, while the KRX will take charge of clearance and settlement. Only investors who hold accounts through KRX member firms will be allowed to trade shares of the KOSPI 200 offered through Globex.
The KRX plans to sign an official agreement with the CME by the end of the year so that the shares can begin trading on Globex by the second half of next year.
KRX president Lee said the LOI with the CME is significant in that it will give the KRX an edge in this age of rising competition between stock exchanges, and an environment of consolidation among them to create ever-larger exchanges with extended hours of operation. The deal with the CME is part of the KRX's strategy to boost its competitive strength.
He said the biggest change that will occur in the domestic stock exchange is that investors will be able to trade KOSPI 200 shares day and night. Until now, domestic investors had to wait until the opening of the exchange to trade their shares due to changes in major foreign stock exchanges. But not any more. Off-hour trading of KOSPI 200 shares will be available through Globex.
KRX also expects increased liquidity for KOSPI 200 shares as foreign investors around the world can invest in those shares along with domestic investors. For member firms, their profits will rise in tandem with boosts in the number of customers and their ability to expand their overseas operations.
The tie-up between the KRX and CME, two of the world's largest stock exchanges, will secure an international competitive edge for Korea's futures industry and upgrade its reputation around the world.
Professor Kim Tae-hyuk of Busan University said the trading of KOSPI 200 futures on Globex would make them a world-renowned brand.
Manager Yang Ho-chol of Morgan-Stanley Korea said the deal would attract many foreign investors of Globex to Korean shares.
Globex was the result of the merger of the global exchanges, which introduced the world's first off-hour electronic securities trading in 1992. From 2002, the 24-hour electronic securities exchange began to offer energy shares traded on the New York Mercantile Exchange (NYMEX). Investors from 88 countries deal with Globex now in a show of its success as an electronic stock trading system.
The CME also operates the traditional floor stock trading system. In 2006, Globex accounted for 75 percent of securities traded by the CME.
The factors that brought such success to Globex include lower fees due to rapid transactions through an electronic network. The system operates eight hubs around the world for the convenience of its customers in such cities as Chicago, Amsterdam, Gibraltar, Dublin, London, Paris and Singapore. nw

Deputy Prime Minister and Finance and Economy Minister Kwon O-kyu shakes hands with CEO Craig Donohue of CME Group after CME and KRX signed the letter of intent in Chicago Oct. 24. KRX President Lee Young-tak stands the first from the right.