Bank of Korea Warns of Risks Associated with Derivatives Linked to Chip Manufacturers

The Bank of Korea has called for enhanced monitoring of overseas derivatives linked to South Korean chip manufacturers, warning that their rapid growth could amplify domestic market volatility. In its semiannual monetary policy report submitted to the National Assembly, the bank pointed out that leveraged bets by hedge funds on market sentiment are a recent example. The report stated that the concentration of semiconductor stocks in the Korean market, the rebalancing of foreign investors' portfolios, and the accumulation and unwinding of domestic leverage were driving factors behind the unprecedented volatility of the KOSPI index from January to July. The Bank of Korea noted that global banks and ETF managers traded South Korean spot stocks, futures, and options while hedging total return swaps, which clearly amplified domestic stock price fluctuations. Although no specific cases were cited, an unusual transaction involving SK Hynix in July triggered nearly $60 million in liquidations in the offshore digital currency market, highlighting the increasing cross-market risks posed by leveraged products linked to South Korean chip manufacturers.