The Korea Exchange (KRX) will implement a new method for calculating substitute prices of debt securities listed in its bond market on June 30, 2014. The purpose of this adjustment is to increase investors’ convenience and to adopt the global standard in the KRX bond market at the same time.
The calculation interval was shortened from a weekly to a daily basis.
The new method uses a moving average based on closing prices of the immediately preceding five (5) trading days. Therefore, the KRX now computes and announces substitute prices every trading day.
Before the implementation, the substitute prices were calculated only once every Friday based on a simple average using closing prices of the immediately preceding (5) weekdays.
The improved calculation method of substitute securities allows market participants to know the exact collateral value of debt securities in possession by reflecting daily bond market situations, thereby increasing convenience to the market participants.
In addition, the new method will contribute to enhancing global confidence in the Korean capital market by reflecting the international standard.
* The substitute securities are securities such as stocks, bonds, and beneficiary certificates listed in the exchange that are used as margin or good faith deposits in lieu of cash. As of May 2014, the substitute securities comprise up to 84%, equivalent to KRW 6.9 trillion, of the total margin amount of KRW 8.2 trillion in the KRX derivatives market. Out of the total substitute securities, listed debt securities account for 74%.