KOR

Research Staff

Research Staff

Lee, Hyo Seob Senior Research Fellow, Head of Financial Services Industry
Secretary General, Secretariat of Seoul IB Forum
Research Field

Profile

TEL
82-2-3771-0650
E-mail
hslee@kcmi.re.kr
Education
Ph.D. in Finance, KAIST Business School
B.A. in Mathematics(double major in Computer ScienceEngineering), POSTECH
Professional Experience
Korea Capital Market Institute(2010.6~present)
- Senior Research Fellows
- Research Areas: Financial Economics, Asset Management, Derivatives
Visiting Scholar at San Diego State University(2018.1~2018.12)
- Finance Department
KAIST Business School(2010.9~2011.12)
- Visiting Professor of MBA Program
KAIST Student Investment Fund(2008.3~2010.2)
- Managing Fellow
Penta Security Systems(2000.12~2004.5)
- Computer Programmer, work for military service

Publications

Opinion

Challenges for Eradicating OTC Derivatives-based Illegal Transactions / May. 30, 2023
In the aftermath of the SG Securities scandal, some argue that CFDs should be removed from the market. CFDs are OTC derivatives based on private contracts. If investment in CFDs is prohibited, investors may flock to new types of OTC derivatives, such as TRSs and new margin trading, which could cause a more serious problem. As Korea has tightened the regulation on OTC derivatives’ market entry since 2010, investors tend to herd toward speculative financial instruments by increasing their exposure to high-risk instruments such as virtual assets, FX margins, overseas leveraged products, and CFDs. It is noteworthy that eliminating the CFD from the market has limitations in preventing the SG Securities scandal and fundamental regulatory improvements are needed to eradicate a range of unfair trade practices involving OTC derivatives. First, transparency in OTC derivatives trading should be enhanced through the reform of the KRX trade repository (TR) reporting system and the Suspicious Transaction Report (STR). Second, the market surveillance system should be upgraded to swiftly detect and investigate new types of unfair trade practices using OTC derivatives in advance. It is also necessary to expand the personal information disclosure for criminals and restrict their participation in the capital market in order to wipe out unfair trading. Third, the financial authorities should prohibit financial services firms from inducing investors to register as individual professional investors to recommend high-risk OTC derivatives, with the aim of preventing potential mis-selling. In addition, the duty of explanation should be imposed on financial services firms that recommend OTC derivatives for individual professional investors. Fourth, the financial authorities should actively induce financial services firms to overhaul the internal control and the compensation system to improve their sales behavior of recommending high-risk financial instruments with high sales fees attached to boost short-term performance.
Real Estate Shadow Banking: Risk Assessment and Countermeasures / Mar. 07, 2023
Shadow banking for Korea’s real estate sector is expanding at a rapid pace, which raises concerns about systemic risk. Real estate shadow banking represents a greater presence in Korea relative to the size of its economy, is highly connected with the capital market and entails a high level of complexity. Compared to other non-bank financial institutions, small-to-medium-size firms tend to engage in real estate shadow banking more actively, potentially resulting in a string of losses in the entire sector. Korea’s real estate shadow banking has long, complicated financing intermediation channels and uses high leverage. Accordingly, the insolvency in real estate shadow banking could not only spread across financial institutions but also bring about a slowdown in the real economy, which requires caution. Against this backdrop, Korea’s financial authorities need to consider shadow banking regulations implemented by international financial supervisory organizations. Based on such regulations, they should curb the rapid growth of real estate shadow banking, strengthen information transparency criteria, and conduct stress tests on a regular basis, aiming for stepping up risk management for real estate shadow banking.
How to Respond to Risks in the Financial Services Industry Amid Increased Volatility in the Financial Market / Sep. 27, 2022
With the Fed’s base rate hikes and concerns over a global economic recession, volatility is intensifying in Korea’s key financial markets including the FX market, the stock market, the bond market and the short-term money market. A strong US dollar could accelerate the tendency of preferring safe assets across the globe, which could drag down stock indexes and major bond prices in Korea. If volatility in the financial market surges in a short period, financial firms would be exposed to the risk of suffering losses from asset management and capital raising activities. Major risk factors behind increased volatility can be summed up as the need for depositing additional FX margin for derivatives contracts, the possibility of an ELS margin call arising from a drop in stock indexes at home and abroad, the risk of incurring losses in bond holdings due to rising market interest rates, and liquidity risk posed by the rollover of property PF-backed ABCPs. To respond to such risks, the financial authorities should institutionalize the establishment and operation of stabilization funds for the stock, bond and FX markets to alleviate volatility in the financial market. They may also consider putting a restriction on short selling and placing a short position limit on key derivatives in the event of a financial crisis. On top of that, the authorities need to implement liquidity support programs on a regular basis through a revision to the Bank of Korea Act, aiming to prevent any loss sustained by non-banking financial firms from threatening financial stability. Also necessary is to devise a wide range of liquidity support measures that could play a similar role to the financial stabilization fund previously implemented. However, it is noteworthy that financial firms may increase high-risk investments on the expectation that the safety net of the capital market would be bolstered. Accordingly, the desirable approach is to adopt strict principles to ensure that the firms deal with investment losses on their own responsibility and strengthen a proactive risk management system.
The Fourth Industrial Revolution Era: The Financial Services Industry’s Mid- and Long-Term Development Strategy / Apr. 19, 2022
Korea’s financial sector has previously focused on financing heavy industries and providing face-to-face financial services. To take the lead in the Fourth Industrial Revolution, however, the financial services industry needs to modify its mid- and long-term development strategy. To this end, the 2003 vision for Northeast Asia’s financial hub and the 2009 financial center plan should be overhauled to formulate a new digital financial hub strategy aligned with the Fourth Industrial Revolution era. In addition, it is worth considering the following three strategies for the mid- and long-term development to ensure that Korea’s financial services industry plays a leading role in the Fourth Industrial Revolution. First, greater risk capital should be provided during an innovative startup’s lifecycle consisting of business creation-growth-exit phases by facilitating intellectual property-based finance and capital market-oriented corporate restructuring. Second, the current financial regulatory framework needs to be reshaped into the principle-based, negative list system to boost the growth of fintech, which should be backed by stricter administrative sanctions such as punitive fines. Third, it is necessary to pursue innovation in data infrastructure by building and opening a large Data Dam that serves as the key to the successful Fourth Industrial Revolution.

Seminar Presentation

관련 세미나 이미지
2019 Oct 02
Digital Innovation Challenges for Korea’s Financial Investment Services Industry
  • Presenter Senior Research Fellow Lee, Hyo Seob
관련 세미나 이미지
2016 Jan 20
Derivatives Market Outlook and Key Issues (Korean)
  • Presenter Senior Research Fellow Lee, Hyo Seob
관련 세미나 이미지
2014 Jan 15
Capital Market Trends and Outlook: Derivatives Market (Korean)
  • Presenter Senior Research Fellow Lee, Hyo Seob