Outstanding Balance of Derivative-Linked Securities and Bonds Hits KRW 97 Trillion in First Half, Highest in Three Years

FSS Report on Derivative-Linked Securities and Bonds Issuance and Management

Increase in Issuance Driven by Stock-Linked ELS and ELB

The outstanding balance of derivative-linked securities and derivative-linked bonds in the first half of this year rose to its highest level since June 2023, buoyed by increased investment demand.

According to the Financial Supervisory Service's "Status of Issuance and Management of Derivative-Linked Securities and Bonds in the First Half of 2026" released on October 2, the outstanding balance of derivative-linked securities and bonds during the first half of this year was KRW 96.7 trillion, representing an increase of 10.9% compared to the same period last year.

The issuance volume for derivative-linked securities and bonds in the first half of this year amounted to KRW 42.9 trillion, up 26.2% year-on-year. By type, derivative-linked securities accounted for KRW 14.3 trillion, while derivative-linked bonds totaled KRW 28.6 trillion. The increase in derivative-linked securities was mainly driven by equity-linked securities (ELS), while the growth of derivative-linked bonds focused on equity-linked bonds (ELB).

During the same period, the redemption amount for derivative-linked securities and bonds reached KRW 41.7 trillion, a surge of 47.3%. By type, redemptions for derivative-linked securities were KRW 14.5 trillion, and for derivative-linked bonds KRW 27.2 trillion. The increase in redemption volume was attributed to higher early redemptions of derivative-linked securities and increased maturity redemptions of derivative-linked bonds, both prompted by rising domestic and overseas stock markets.

Within derivative-linked securities, ELS underlying assets were comprised of index-linked products at KRW 8.1 trillion, stock-linked at KRW 3 trillion, and hybrid types at KRW 1 trillion. The index-linked category saw an increased number of products using KOSPI200 due to the rise in domestic indexes. Meanwhile, highly volatile stock-linked products featuring high-performing assets such as Samsung Electronics, Tesla, and SK hynix gained popularity.

The volume of knock-in derivative-linked securities amounted to KRW 7.6 trillion, exceeding that of no-knock-in types (KRW 6.7 trillion). Among the knock-in types, the majority were low-knock-in products with a knock-in barrier of 50% or less, thereby reducing the potential for loss.

Securities companies accounted for the largest share of derivative-linked securities and bonds underwriting. In the first half of this year, securities companies underwrote KRW 7.6 trillion of newly issued derivative-linked securities, while banks and asset management companies underwrote KRW 1.9 trillion and KRW 1.4 trillion, respectively. In the category of derivative-linked bonds, securities companies underwrote KRW 12 trillion, banks KRW 7.4 trillion, and retirement pension funds KRW 5 trillion.

The annualized yield of redeemed derivative-linked securities and bonds stood at 6.8% and 3.6%, respectively. The yield on derivative-linked securities increased compared to the first half of last year (6.3%), while the yield on derivative-linked bonds remained comparable to the previous year's level (3.6%). By product type, ELS recorded 7.8%, derivative-linked securities (DLS) posted 2.0%, ELB 3.6%, and derivative-linked bonds (DLB) 3.6%.

An official from the Financial Supervisory Service stated, "Since derivative-linked securities carry a risk of principal loss, investors must thoroughly understand the product structure and invest cautiously. While derivative-linked bonds are principal-guaranteed products, they are not covered under the Depositor Protection Act, so investors should be aware that both principal and interest could be lost in the event of the issuer's bankruptcy." He added, "The Financial Supervisory Service will continue to monitor risk factors and guide financial firms to provide robust risk disclosures to investors."

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