Issuance of derivative-linked securities (ELS and DLS) and derivative-linked bonds (ELB and DLB) in Korea rose 21% last year from a year earlier. Equity-linked securities (ELS) issuance climbed 35.4%, overcoming the trauma of the Hong Kong H-Index crisis and delivering a solid annualized return of 7.8%.
According to the Financial Supervisory Service (FSS) on Tuesday, issuance of derivative-linked securities and bonds totaled 94.9 trillion won ($70 billion) last year, an increase of 21.3 trillion won, or 21.3%, from the previous year. Redemptions came to 81.2 trillion won, down 5.1 trillion won.
With issuance exceeding redemptions, the outstanding balance of derivative-linked securities and bonds at the end of last year rose 13.6% year-on-year to 95.1 trillion won, rebounding to a level similar to the end of 2023 (94.3 trillion won). The FSS said investor sentiment toward derivative-linked products is recovering clearly, supported by the stock market rebound and stabilization of interest rates.
Issuance of derivative-linked securities totaled 25.8 trillion won, up 28.4% from a year earlier. ELS issuance rose by 5.7 trillion won, or 35.4%, to 21.8 trillion won, driving the overall increase. DLS issuance stood at 4 trillion won, similar to the previous year.
ELS underlying assets were dominated by index-linked products at 16.8 trillion won, followed by stock-linked products at 3.7 trillion won and hybrid products at 1.2 trillion won. Major indexes such as the S&P 500 (14.7 trillion won), EuroStoxx 50 (14.3 trillion won) and KOSPI 200 (13.9 trillion won) were used evenly. For stock-linked products, high-volatility names such as Tesla (1.7 trillion won), Palantir (1 trillion won) and Samsung Electronics (005930.KS) (500 billion won) were popular.
The annualized investment return on derivative-linked securities that were either redeemed early or at maturity last year was 6.4%. This marks a solid performance compared with the loss rate of minus 4.7% recorded in 2024, reflecting stable gains in underlying assets including domestic and overseas stock markets. The average annualized return on ELS was 7.8%, with half of the products (52.5%) falling within the 6% to 10% return range.
Derivative-linked bond issuance came in at 69.1 trillion won, up 15.6% from a year earlier. Equity-linked bond (ELB) issuance rose 21.2% over the same period to 47.5 trillion won. Among ELB underlying assets, the KOSPI 200 accounted for the largest share at 9.4 trillion won. The ELB investment return, however, stood at 4% annually, down 0.3 percentage point from 4.3% the previous year.
Derivative-linked securities are instruments whose payout structure is predetermined based on changes in underlying asset prices. In the event of a knock-in, investors can theoretically lose their entire principal. Derivative-linked bonds, meanwhile, promise principal repayment based on the issuer's credit, while interest is determined by changes in underlying asset prices. Although classified as principal-protected products, they are not covered by the Depositor Protection Act, investors should note.
