Since the establishment of Mirae Asset Daewoo Securities at the end of 2016, the integrated securities firm, resulting of the merger between Daewoo Securities and Mirae Asset Securities, which became Korea's biggest investment bank has consolidated its position as one of the leading distributors of structured products through a 'diverse ELS/DLS' product range.
In a market where index-linked products drive most of the sales volumes, Mirae is focusing on payoff innovation by offering a twist on the typical autocallable step down profile. The ELS 21533 - launched at the end of August, is a three-year equity-linked security linked to a basket of indices comprising the Hang Seng Index, Eurostoxx 50 and Kospi 200. The product which attracted KRW5bn (US$4.38m) worth of sales features five knock out dates every six months, an annual coupon of 5% and no capital protection at maturity. The Kospi 200 features as a bonus underlying and will add a 1% bonus coupon to the early and final redemption amounts if its level is above its strike level on any observation date.
"If the Korean benchmark is above its initial level on the early repayment evaluation dates, the item pays 1% on top of the absolute coupon," said Kyung ho Kim (pictured), general manager, derivatives solutions and syndication at Mirae Asset Daewoo Securities, pointing that "the common step-down (autocall) feature defends against some decline but has a disadvantage when it comes to profit."
The firm has filed an application for an exclusive license for this payoff type by the Korea Financial Investment Association (Kofia), excluding any other issuers from issuing or selling products replicating the same structure during a three-month period.
"This bonus coupon product applies for exclusive use rights, which is a patent of financial products in Korea," said Kim. The new product structure has gained investors' attention with two more product issued in the second half of September to respond to demand. The ELS 21576 features the same indices and sold KRW8.8bn while the ELS 21901 which is linked to the Hang Seng China Enterprises index, Eurostoxx 50 and Kospi 200, will strike on September 28.
"This type of item pays additional coupons without increasing the risk of the item", said Kim, adding that it is evident that" too much safety does not really appeal to domestic investors" as suggested by the lack of traction of the Shinhan lizard ELS products denominated in Japanese yen marketed in August. The Lizard option was introduced in 2016 to reduce the risk of loss and as a safer option than the traditional step-down ELS.
SRP data shows that issuance of share-linked products has increased by more than 50% in the first half of 2017 with Mirae leading the way of diversification. "[It is only natural that] overseas stocks and indices are also considered as a bonus underlying and not just the Kospi 200," said Kim. Although Mirae Asset Daewoo's sales of ELS and DLS products was up 1.5% in the second quarter of 2017, the firm's goal is to reach KRW200billion, according to Kim.
Mirae Asset is among the five largest Korean securities firms that applied for an investment banking license earlier in June. Unlike banks, securities firms have limited channels to funding. However, if a large-scale investment bank license is granted, a securities firm can handle up to 200% of its owner's equity in drawn bills.
Meanwhile, the Korean Financial Investment Association (KFIA) announced the introduction of an educational 'Derivatives combined products' course to 'acquire practical knowledge of the ELS/ELB products through various case-based lectures based on practical work experience'. It's a short-term education course which targets employees of financial institutions such as banks, securities firms, insurance companies, etc.
Related stories:
Product Snapshot: Offering the lizard for safety falls on deaf ears
Net income of SK's Mirae Asset Daewoo up by 35%
South Korea Market Review - June 2017
Structured products in South Korea climb and single share preference emerges
SK banks' profit up as structured product sales largely upbeat