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Substitute securities management

KSD manages substitute securities that are deposited as margin by investors to futures companies in order to guarantee settlement of futures transactions.

Futures trading and definition of substitute securities

Futures trading and definition of substitute securities : Futures trading, Substitute securities
Futures trading Substitute securities
  • In a futures trade, products will be delivered at the current fixed price after a certain period.
  • The wide time gap between the time of contract and execution of the delivery carries the possibility of non-fulfillment of the transaction. In order to avoid this risk, margin is posted when the contract is signed.
  • Futures investors can post margin in cash or securities. Margin securities are referred to as "substitute securities for futures trading."
  • Korea's futures market manages substitute securities efficiently by using KSD's securities deposit and settlement system.

Participants in the substitute securities management system

  • Korea Exchange (KRX)

    KRX is the operator of the futures market, and performs the function of a central counterparty (CCP) to guarantee that each counterparty fulfill its obligations for all transactions.

  • Futures companies and investors

    Futures companies will execute orders received from their clients (investors), and maintain records on outstanding contracts and manage margin, collecting a fee for the services.

  • Korea Securities Depository (KSD)

    KSD provides services such as deposit and withdrawal of clients' substitute securities, the management of their pricing, and the management of their rights.

Benefits of substitute securities management system

  • Contribution to futures market advancement
    • By offering a substitute securities management service for futures transactions that integrates the infrastructure of the securities market and futures market, it provides convenience to futures market participants and reduces unnecessary costs arising from overlapping investment in facilities.
  • Sophistication of the securities deposit system
    • In addition to its traditional function as a CSD, KSD created a new value-added service utilizing deposited securities for futures trading in order to respond to changes in the financial market environment.
  • Property protection for futures investors
    • First, investors of futures pay substitute securities to futures trading companies. After that, KSD sorts out the substitute securities into depositor's account of futures trading companies and investor's account, and manages them separately in order to enhance investors' property protection.
    • KSD manages the substitute securities posted by futures investors in an investors' account segregated from the proprietary account of the futures company, enhancing the protection of investor property.