South Korean securities firms have been allowed to sell options to the U.S. institutional investors as the nation’s sole stock exchange operator Korea Exchange (KRX) obtained class no-action relief (Class Relief) from the U.S. Securities and Exchange Commission (SEC), KRX announced Wednesday.

The Class Relief is given to foreign bourse operators to allow their affiliated brokers and dealers to market their options products to eligible investors in the U.S. if they meet certain conditions.

As the SEC granted the Class Relief to KRX, Korean brokerage firms that are members of KRX can market local stock index-based options including Kospi 200 Option, Mini Kospi 200 Option and Kosdaq 150 Option, and 31 individual stock options on the phone or via e-mail to the American institutional investors with more than $100 million assets under management in total.

As the Class Relief would allow local brokerages to sell Kospi 200 options along with other products such as Kospi 200 futures in the U.S., KRX expected liquidity and transactions in the domestic derivatives market would increase. Until now, Korean brokerages had been able to sell only futures based on the local stock indexes, limiting foreigners’ trading of local derivatives due to a lack of hedging vehicles.

Options and futures are derivatives that give investors the right to buy underlying assets such as stocks, bonds and baskets of equities at some fixed future date. Only difference between the options and futures trading is that options investors are not bound to obligations to buy in the future unlike futures investors. Investors often trade both options and futures based on the same underlying asset that would enable them to hedge losses.

By Jin Young-tae and Choi Mira

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