A leading example of this is renewable energy equipment firm
Celltrion, which was the top special in Asia and the fourth
biggest globally, contributing almost 3% of revenue (Tesla, the
biggest, contributed 8%). During 2016 the fees were between 15%
and 20% but this has since reduced to 6%.
Other top revenue earning stocks included: Oci Co Ltd, Kakao
Corp, Hotel Shilla, Hanmi Pharm and Samsung Heavy
South Korea represented 59% of emerging markets’
total revenue, with Taiwan at 20% and Malaysia at 6%. It also
takes the number one spot in available inventory with 36%
(versus 22% from South Africa and 16% from Taiwan) and loans
with 40% (versus 24% from Taiwan and 19% from South
"Interestingly, from an emerging market perspective, South
Korea is now the global number one emerging market in terms of
revenues, loans and inventory, claiming the top spot by a very
long margin from local markets such as Taiwan and Malaysia,"
says Measures. "Given the exposure of South Korea to China, and
lack of international SBL opportunities in China domestically,
this emerging market predominance is expected to continue until
workable international models are implemented in India and
China," adds Measures.
The SBL model at KSD continues to evolve, and good progress was
made in 2016 in working through nuanced issues in the market.
Standing proxies can now send in details of each
month’s transactions, while duration limits in
between have been loosened and ETF collateral valuation ratios
have been improved to give borrowers more headroom. "KSD
organised an international securities financing forum in Hong
Kong in October, which was well received by the market and
continues to show the partnership that exists to try and evolve
in the process and system to fully meet its long-term
potential," says Measures.
However, challenges remain for market participants. For
example, "various corporate action events routinely require
lenders to action immediate recalls of securities, in order to
protect beneficial owner entitlements," says Fannin. "This is
an unusual requirement that dampens broader market liquidity,
particularly for those securities trading special. South Korea
also requires borrowers to pre-borrow prior to any intended
execution. This increases borrower transaction costs in cases
where trades are ultimately not executed."
Chamil Ioussoupov, head of equity finance Hong Kong, Natixis,
says: "Korea, in comparison to other markets, is already very
restrictive and controlled in terms of reporting trades and
registration. The framework is already in place. The main
barrier in the market today is the foreign ownership limit, but
that has existed for a long time."
The most recent development was a note released by Korea
Exchange (KRX) in early February announcing its intention to
change its rules regarding the designation of "overheated"
short-sold stocks. Detail has not yet been provided but it will
include strengthened penalties against the short selling rule
violators and will take effect from 27 March 2017.
"Any new limitations or finger-pointing is of course important,
especially if it brings the license into question or heftier
fines," says Ioussoupov "But what is more important is the
framework, rather than just one mechanism."