Background

In response to increasing demand for Currency Futures Products (CFPs) for hedging purpose, especially by corporate international traders, the Financial Services Commission and Korea Exchange (KRX) have decided to push ahead with "remodeling" the currency futures market so as to allow easier access of the instruments in place of riskier OTC derivatives.

Currently, CFPs in major currencies--US dollar, Euro and Yen--are traded in large units with rigid trading restrictions, failing to meet the demands in the market which becomes increasingly diversified in terms of units, maturities and contract conditions.

Because of rigid CFPs trading restrictions, international traders prefer OTC derivatives for foreign currency hedging as the latter allows more flexibility for the traders and their counterparties in forging contracts.

Most OTC derivatives carry high risks especially for traders with insufficient knowledge in such complex products as KIKOs. Further, the OTC derivatives markets have shrunk under high pressures of current crisis.

* Please refer to the attached PDF for details.