Equity-Linked Securities and Bonds Issuance Up 24% in Q1... KOSPI200 Share Expands

FSS Reports on First Quarter Issuance and Management of Equity-Linked Securities and Bonds
Boosted by Investor Sentiment Recovery... Issuance Reaches 19.6 Trillion Won, Up 3.8 Trillion Year-on-Year

In the first quarter, the issuance of equity-linked securities (ELS) and equity-linked bonds (ELB) by domestic securities firms increased by more than 24% year-on-year, boosted by a recovery in investor sentiment. The growth was primarily driven by a surge in issuance of principal-protected products such as equity-linked bonds (ELB and DLB), while the proportion of domestic indices—such as KOSPI200—in underlying assets expanded due to the strong performance of the domestic stock market.

According to the Financial Supervisory Service on July 8, the total issuance of equity-linked securities and bonds in the first quarter reached 19.6 trillion won, up 3.8 trillion won (24.1%) from the same period last year. By product type, the issuance of equity-linked securities (ELS and DLS) totaled 6.7 trillion won, an increase of 1 trillion won (17.5%) year-on-year, mainly led by stock-linked ELS. During the same period, the issuance of ELB and DLB rose by 2.8 trillion won (27.7%) to 12.9 trillion won.

As the total issuance increased, the redemption amount also rose by 7.9 trillion won (62.2%) compared to the same period last year, reaching 20.6 trillion won. Of this, redemptions for equity-linked securities amounted to 7.1 trillion won, while equity-linked bonds totaled 13.5 trillion won. These figures represent increases of 2.5 trillion won (54.3%) and 5.4 trillion won (66.7%), respectively, from one year ago.

At the end of the first quarter, the outstanding balance of equity-linked securities and bonds stood at 93.5 trillion won, down 1.6 trillion won (1.7%) from the end of the previous year. By type, equity-linked securities accounted for 17 trillion won, while equity-linked bonds made up 76.5 trillion won.

Breaking down by type of underlying asset, ELS issuance was led by index-type products at 3.8 trillion won, followed by stock-type at 1.5 trillion won, and hybrid-type at 200 billion won. For index-type products, the proportion of those using the KOSPI200 index increased from 70.1% last year to 78.7% this year, reflecting the upward trend of domestic indices.

For stock-type products, there was strong demand for high-volatility stocks offering relatively higher returns, such as Tesla (800 billion won), Palantir (700 billion won), Samsung Electronics (400 billion won), and SK hynix (300 billion won). Among equity-linked bonds, ELBs were mainly issued as stock-type (5.1 trillion won), followed by index-type (1.9 trillion won) and hybrid-type (300 billion won), in contrast to ELS where stock-type products dominated issuance.

A Financial Supervisory Service official commented, "Due to the rise of domestic indices, the proportion of overseas indices such as S&P500 and Euro Stoxx 50 has decreased, while the share of KOSPI200 has increased somewhat. The HSCEI index remained sluggish, with issuance (proportion) standing at around 200 billion won (5.3%) due to losses in the Hong Kong H-share index."

By product structure, issuance of knock-in type equity-linked securities reached 3.3 trillion won, up 900 billion won from 2.4 trillion won in the same period last year. The proportion (49.3%) expanded by 7.2 percentage points. All knock-in type products were issued as ELS, and most (3.2 trillion won, 97.0%) were low-barrier types with barriers set at 50% or lower.

In terms of investor acquisition in the first quarter, securities firms accounted for 3.5 trillion won (52.2%) of equity-linked securities, followed by banks with 900 billion won (13.5%) and asset management companies with 900 billion won (13.4%). The share acquired by securities firms increased (+11.8 percentage points), while banks' share decreased (-16.3 percentage points) compared to the same period last year.

For products that were redeemed early or at maturity during the first quarter, the annualized investment return was 6.8% for equity-linked securities, up slightly from 6.6% a year earlier, whereas equity-linked bonds declined to 3.5% from 4.4% in the same period. By product type, ELS posted 8.3%, DLS 4.5%, ELB 3.7%, and DLB 3.2%, with stock-based products offering relatively higher returns.

The Financial Supervisory Service cautioned that, as equity-linked securities may incur principal losses, investors should fully understand the number of underlying assets, expected returns, and product structures before investing. They also explained that, even for principal-protected products such as ELB and DLB, investors may be unable to recover principal and interest if the issuing securities firm goes bankrupt, and could also suffer principal losses in the case of early redemption. Therefore, investment duration and related factors should be carefully considered. Going forward, the Financial Supervisory Service plans to closely monitor risk factors such as issuance trends for equity-linked securities and bonds, and will guide financial institutions to ensure adequate risk disclosures for investors.

This content was produced with the assistance of AI translation services.