China’s fourth largest bank Bank of China and fifth biggest securities firm China Merchants Securities Co. applied for approval from the South Korean financial authority to trade derivatives products in the country, marking the first time for Chinese financial institutions to enter the local derivatives market other than the banking and insurance sectors. Their move is in stark contrast to U.K.-based large investment bank Barclays’ decision to close its Seoul office and Goldman Sachs Group Inc.’s withdrawal of its banking business from the country early this year.

According to financial industry sources on Friday, Bank of China’s Seoul office has recently applied for a preliminary license to the Financial Services Commission (FSC) to trade derivatives in the Korean exchange. The FSS is known to be reviewing the request, and it would determine whether to grant the license as early as next month.

After the approval is given, the Chinese bank is expected to act as a market maker for yuan currency futures listed on the Korea Exchange (KRX) in October last year, providing liquidity. Currently, three local brokerages, Mirae Asset Daewoo Co., Daishin Securities Co. and eBest Investment & Securities Co., offer liquidity for yuan currency futures trading, but trading volume is low.

China’s fifth largest brokerage firm China Merchants Securities also applied for a preliminary license to broker overseas stocks and derivative products in late February and has been seeking to turn its Seoul office into an entity. This is the first time for a securities firm from mainland China to set up a local entity. The brokerage firm plans to broker stock futures listed in the Hong Kong bourse or commodity futures in the London bourse to Korean financial institutions.

By Choi Jae-won

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