SEOUL, June 8 (Korea Bizwire) — South Korea will begin opening its major derivative markets at 8:45 a.m., 15 minutes earlier than the current opening time, next month to reduce the volatility of stock prices and upgrade investment practices to global standards, the country’s financial authorities said Thursday.
The Financial Services Commission, the Financial Supervisory Service and the country’s bourse operator Korea Exchange made the joint announcement, saying they will first advance the opening hour of the derivative markets of the KOSPI 200, KOSDAQ 150 and KRX 300 on July 31.
Currently, derivative trading in South Korea starts at 9 a.m., the same time as the country’s stock markets open, unlike other major countries where derivative trading begins ahead of equity market trading, such as Japan, Hong Kong, Taiwan and Singapore.
The United States and Germany operate their derivative markets 21 hours and 23 hours per day, respectively.
The current system has made it difficult for investors to consider the price of derivative products when trading stocks shortly after opening.
The price of derivative products usually reflects investors’ expectations of the price of the underlying assets traded in the stock market.
The same opening time also increases the volatility of the stock market in the first 15 minutes as major changes are not adjusted for in the futures market before the spot market opens, according to the financial authorities.
To lower the volatility of the derivative market, there will be a price cap of an 8-percent increase and decrease between 8:45 a.m. and 9:00 a.m.
The cap will be expanded to a 15-percent increase and decrease five minutes after prices reach the initial cap.
With the change, the regular trading hours for derivatives will be from 8:45 a.m. to 3:45 p.m., extended by 15 minutes, but the pre-market trading hours will be reduced by 15 minutes from 8:30 a.m. to 8:45 a.m.