Table of Contents
Origins
KRX dates back to 1887. Busan saw the first stock exchange set up here, then 1927 saw the first official exchange open in Seoul. Since then, KRX has been the spot for trading stocks, securities, and derivatives.
Let’s take a look at the beginnings of KRX and how it evolved into what it is today:
Pre-Modern Korea
Pre-modern Korea experienced a range of influences, from the Mongol Horde and Northern China to Japan. Historical records of Korea date back over 2,000 years. During this time, Korea was divided into three kingdoms. Finally, in 668 CE, they were unified under one dynasty.
The Unified Silla Period (668–935 CE) saw Buddhism become the state religion, and Confucianism influenced government bureaucracy. Korean written language saw much development. Government-sponsored academies produced scholars who advanced Korean studies. Printmaking technologies were created in the 8th century Silla and spread to East Asia and Europe.
Under Goryeo dynasty rule (918–1392 CE), Korea achieved nationalist glory. Ceramics were artistically crafted and admired throughout Asia. Scientific advancements included the printed world map in 1285 CE. Philosophical ideas flourished with collaborative works between indigenous and Chinese authors. Religions prospered due to the production of scriptures. Economic growth was encouraged by expansion throughout foreign lands and decentralizing doctrine on agriculture. However, pre-modern patriotism was evident as loyalty was placed towards a unified monarchy. This was similar to Western medieval societies, coupled with Confucian morals.
Japanese Occupation
The Japanese occupation of Korea was a huge turning point in Korean history. From 1910 to 1945, Korea was controlled by Japan, and the people were oppressed. This colonization hugely affected the economy, politics, and society of Koreans.
Exports decreased significantly, and the import-export balance was in Japan’s favor. The population grew in cities, and industry grew at an incredible rate. Along with economic exploitation, Koreans experienced censorship, military conscription, and property confiscation. These were all measures taken by Japan to take away Korea’s identity.
In 1943, in response to growing public anger, Japan announced a plan for reunification with Korea called the ‘Korea Exchange.’ Every family was given a coupon to trade Korean goods for Japanese goods of equivalent value. It ended Japan’s monopoly on trade. However, this policy didn’t last, as public unrest caused a retreat in 1945 when WW2 was ending.
In the end, despite decades of cruel oppression and hardship after liberation in August 1945, when Japan legally gave up control over Korea – many connect Korea’s success in postwar development to the markets they likely wouldn’t have created without Japan’s colonization.
Post-War Exchange
The Korean War of 1953 left the country’s economy in ruins. To help rebuild, the government created the Korea Exchange (KRX) in 2005. KRX acted as a stock exchange in South Korea. It was a great contributor to the economy’s growth.
This section will look at the effect of KRX on the South Korean economy and its history.
Establishment of the Korea Exchange
KRX was created in Jan. 2005, after KSE, KOFEX, and the KOSDAQ Stock Market merged. It is now Korea’s only securities exchange. KRX is responsible for trading listed securities and commodities and keeping markets fair, efficient, transparent, and orderly.
After WWII, South Korea had no comprehensive stock exchange system. From 1945 to 1990, they relied on over-the-counter markets. Then, in 1990-1991, the Seoul Stock Exchange opened. It combined Busan’s Capital Market Assoc. with smaller regional exchanges.
The Over the Counter Index tracked four brokerages trading Samsung Electronics Co. Two more joined later, and four more by 1995. It became known as the Composite OTC Index. Finally, it led to the KSE, which works today as KRX’s predecessor. On Nov. 23rd, 1996, it was formed as “The Korean Electronic & Automation Stock Exchange” with 107 members.
Expansion of the Exchange
In January 2005, the Korea Exchange was established, a huge stride for South Korea’s economy. Before this, the capital markets were limited to over-the-counter and weakly grown derivatives markets. The launch of the trading system brought many features, including an electronic price quotation, screen-based trading systems, quick order execution, and clearance & settlement operations.
Political changes in 2009 enabled the capital market to become more efficient. Many state-owned organizations, including the former Seoul Securities Exchange (SSX), were privatized. In 2012, SSX merged with KOSDAQ and KRX, creating a single exchange. As a result, it made it simpler to access domestic investors on a liquid platform.
Today, Korea Exchange is devoted to offering transparent services and becoming one of Asia’s top securities exchanges. It has pushed initiatives like corporate responsibilities disclosure systems for listed companies and technology advancements. In 2018, it released a derivatives platform and continued to create new solutions, so its members could provide better services.
Financial Crisis
The Korea Exchange (KRX) has experienced several financial disasters that greatly affected the nation’s economy. One of the most destructive was the 1997 Asian Financial Crisis. It resulted in a significant market crash and a lot of financial trouble.
We will take a look at why this crisis happened, what the consequences were, and other financial crises that have hit the KRX:
1997 Asian Financial Crisis
The 1997 Asian financial crisis began in South Korea. It caused a crash in the Korean Exchange (KRX), with prices falling by more than 80%. The economic cost was estimated at $108 billion.
Foreign investors sold off riskier assets. Governments implemented measures to protect their currencies, such as freezing salaries and raising interest rates. In Korea, they decreased fiscal budgets and improved transparency.
These adjustments were effective. After three years, Korea’s total output grew by 6%, as reported by the IMF. This growth confirmed the success of their adjustment strategy.
2008 Global Financial Crisis
The global financial crisis of 2008 began in the US, causing massive economic losses worldwide and leading to the worst recession since the 1930s. Low-interest rates, housing booms, negligence by regulators, and too much corporate debt were some of the causes. It led to bankruptcies, particularly those related to subprime mortgages.
Governments responded with stimulus programs and bailouts.
The Korean market was hard hit due to its reliance on international trade and foreign exchange. South Korean exports and domestic demand both fell. The Korea Exchange dropped 23%. Credit markets tightened, making it difficult for businesses to get loans.
The South Korean government reacted with a US$130 billion rescue package. The package included tax incentives for R&D investments, lower-interest loans, and foreign currency deposit guarantees. These measures helped lessen losses and set the stage for future growth.
Recent Developments
Recently, the Korea Exchange has taken steps to modernize and upgrade its trading environment. First, in 2017, they unveiled Kospi 200 Futures and Kospi 200 Options to increase liquidity and enhance their derivatives market. Then in 2019, they introduced an automated system for equity derivatives.
This article looks into these advancements and how they have influenced the Korea Exchange.
Introduction of the KOSPI 200 Index
In 2005, the Korea Exchange (KRX) released the KOSPI 200 Index. It was for investors to get a better understanding of the market. This index had the top 200 companies listed on the KRX Main Board. It was made to fit the KRX Main Board’s indexing system. Plus, it was updated with new regulations for open market operations.
Investors could use the KOSPI 200 to access large-cap stocks. It allowed them to monitor the market better. Plus, they could also pick stocks to diversify their portfolios. The KOSPI 200 was also used for stock derivatives like futures and options. These were traded on the Korea Exchange. In recent years, it has been used for financial analysis and trading. Also, it is used for portfolio regulation.
Introduction of Derivatives Trading
In 2001, the Korea Exchange allowed investors to hedge market risk or speculate on security prices with derivatives. Options, futures, and swaps contracts were traded. They gave strategies for market participants. It was an essential milestone for offering sophisticated products. Hedging or speculating helped manage risk better. Investments into securities or financial instruments increased through portfolios or ETFs (Exchange-Traded Funds). Trading volumes rose domestically and internationally.
Expansion of the Exchange’s International Reach
The exchange has rapidly grown its international reach lately. It has ties with many countries across Europe, Asia, and Latin America. So they can provide up-to-date financial information and reliable trading networks. The exchange can now do this on a much wider scale than ever before.
It has also employed new technologies to make operations smoother. Automated trading systems and ECNs enable the exchange to keep staff focused on core business activities. This technological revolution has made transaction costs cheaper, making the markets more liquid.
The exchange is always striving to improve for investors. It does this by introducing fresh products and services that encourage cross-border investing. It also expands into new regions as market conditions change. As more countries join the global markets, the exchange will continue to be competitive by offering great investment value.
