Helped by a recovery in global stock markets and a trend of stabilizing interest rates, the market for derivative-linked securities and bonds is regaining vigor. After investment demand plunged in the wake of losses on equity-linked securities (ELS) tied to Hong Kong's H-share index, overall market size rebounded to the 95 trillion won level, comparable to 2023, as demand clearly recovered, centered on derivative-linked bonds.
According to the "2025 status of issuance and management of derivative-linked securities and bonds" released by the Financial Supervisory Service on the 6th, the total issuance of derivative-linked securities and bonds last year was 94.9 trillion won, up 21.3 trillion won (28.9%) from a year earlier. As last year's issuance exceeded redemptions (81.2 trillion won), the outstanding balance at the end of the year came to 95.1 trillion won, up 13.6 trillion won from the prior year.
Derivative-linked securities are non-principal-protected securities in which the revenue structure is determined in advance based on a method linked to fluctuations (performance) in the price of the underlying asset. They are divided into equity-linked securities (ELS), where the underlying asset is equity-related, and other derivative-linked securities (DLS), where the underlying asset is other assets such as interest rates, currency, and commodities.
Derivative-linked bonds promise payment of principal based on the issuer's (securities firm's) credit, while interest is determined in linkage with fluctuations (performance) in the price of the underlying asset. These are also classified, depending on the underlying asset, into equity-linked bonds (ELB) and other derivative-linked bonds (DLB).
By issuance trends, both derivative-linked securities and derivative-linked bonds posted growth rates close to 30%. In particular, as demand for principal-paying products increased in the retirement pension market, issuance of derivative-linked bonds rose to 69.1 trillion won, accounting for more than 70% of total issuance. Non-principal-protected derivative-linked securities also saw 25.8 trillion won issued, up 28.6% from a year earlier, centered on index-type ELS.
By underlying asset, results varied by product type. For non-principal-protected ELS, issuance centered on index-type products that broadly used major domestic and overseas benchmarks such as the S&P 500 (14.7 trillion won), Euro Stoxx 50 (14.3 trillion won), and KOSPI 200 (13.9 trillion won). In stock-type ELS aimed at high returns, volatile names such as Tesla (1.7 trillion won) and Palantir (1 trillion won) were popular.
In contrast, for principal-paying ELB, stock-type issuance totaled 36.3 trillion won, exceeding index-type (7.8 trillion won). This is seen as a result of using familiar domestic blue chips as the underlying asset for investors. ELB tied to Samsung Electronics drew 30.5 trillion won, followed by Korea Electric Power Corporation (11.5 trillion won) and Hyundai Motor (1.7 trillion won).
Investment performance was also solid. The annualized return on derivative-linked securities redeemed last year was 6.4%, turning to a profit from the prior year (-4.7%). This was thanks to stable gains in stock prices, the underlying asset, in domestic and overseas markets. By product, ELS was highest at 7.8%, followed by ELB (4.0%), DLB (3.3%), and DLS (2.1%). Looking at the return distribution, more than half (52.5%) of ELS investors earned returns of 6% to 10%.
However, the Financial Supervisory Service advised investors to scrutinize risks carefully. For derivative-linked securities, a drop in the underlying asset can lead to delays in early redemption or a total loss of principal.
Principal-paying derivative-linked bonds (ELB, DLB) are no exception. Derivative-linked bonds are not covered by the Depositor Protection Act, and if the issuing securities firm goes bankrupt, there is credit risk that principal may not be returned. Accordingly, the agency explained that investors must check the issuer's financial condition and credit rating, and should note that early redemption may result in a principal loss.
An official at the Financial Supervisory Service said, "The Financial Supervisory Service will closely monitor risk factors such as the issuance status of derivative-linked securities and bonds, while guiding financial companies so that risk disclosures to investors are made thoroughly."