Q3 Securities Settlement Value Drops 16.5%

A screen at Hana Bank’s dealing room in Jung-gu, Seoul, displays the won-dollar exchange rate and the KOSPI and KOSDAQ indexes on Oct. 12. Trading activity in South Korea’s domestic capital markets cooled in the third quarter, with the daily average securities settlement value falling more than 16% from the previous quarter. The decline is attributed to a combination of the high base set by the record second quarter, a stock market correction and slower bond trading. According to the Korea Securities Depository on Oct. 12, the daily average securities settlement value for stocks and bonds combined stood at 35.4 trillion won, or approximately $26.53 billion, in the third quarter. This represented a 16.5% decrease from 42.4 trillion won in the second quarter. However, the figure remained 29.4% higher than in the same period last year, indicating that overall trading activity remained elevated year over year. By asset class, both stocks and bonds posted declines. The daily average stock settlement value in the third quarter came to 8.8 trillion won, down 12.4% from the previous quarter and marking the first quarterly decline in a year. Bond settlement value also fell, averaging 26.6 trillion won per day, down 17.7% from the previous quarter. The actual value of stock market transactions fell much more sharply than settlement figures. The daily average trading value on the on-exchange stock market reached 77.3 trillion won in the third quarter, down 34.1% from 117.2 trillion won in the second quarter. Institutional investors’ stock trading value also fell 26.4% to 45.4 trillion won. The smaller decline in settlement value compared with trading value was attributable to a change in the netting ratio. The ratio measures the share of buy and sell amounts offset against each other, reducing the amount that must actually be settled. As the netting ratio fell, the amount of funds requiring settlement was relatively better supported. The netting ratio on the on-exchange stock market declined by 1.6 percentage points, from 96.3% in the second quarter to 94.7% in the third quarter. In the bond market, short-term funding demand among institutions declined noticeably. Institutional investors’ daily average settlement value for short-term bonds fell 37.8% from the previous quarter to 6.5 trillion won. By contrast, settlement value for certificates of deposit (CDs) and commercial paper (CP) edged up 0.1% to 4.8 trillion won, remaining broadly unchanged from the previous quarter. By type, government bonds accounted for the largest share of institutional bond settlement value, at 6.394 trillion won, or 51.0% of the total. They were followed by financial bonds at 28.5%, special bonds at 7.3%, Monetary Stabilization Bonds at 6.9% and corporate bonds at 3.4%. The daily average settlement value on the on-exchange bond market fell 6.2% from the previous quarter to 2.7 trillion won. Market participants attributed the sharp decline in settlement value primarily to a prolonged stock market correction in the second half of the year and increased interest rate volatility, both of which dampened investor sentiment. As the strong equity trading activity seen through the second quarter cooled, settlement volumes between securities firms and institutional investors also declined.