Bank of Korea Warns on Derivatives Linked to Korean Chipmakers

Odaily: The Bank of Korea has called for stronger monitoring of overseas derivatives linked to South Korean chipmakers, warning that their rapid growth could amplify volatility in the domestic market. It pointed to Situational Awareness's leveraged bets as a recent example. In its semiannual monetary policy report submitted to the National Assembly on Thursday, the Bank of Korea said the concentration of South Korean market exposure to semiconductor stocks, foreign investors' portfolio rebalancing, and the buildup and unwinding of domestic leverage were drivers of unprecedented fluctuations in the KOSPI index from January to July.

The Bank of Korea said global banks and ETF managers traded South Korean spot equities, futures, and options while hedging total return swaps, apparently amplifying domestic stock price volatility. Although the Bank of Korea did not cite a specific case, an unusual trade in SK Hynix in July triggered nearly $60 million in liquidations in the offshore digital currency market, highlighting the growing cross-market risks posed by leveraged products linked to South Korean chipmakers. (Jinshi)