The initial focus will be on the equity market, but the licence, which is issued by the Financial Supervisory Commission, approves JPMorgan to market and trade the full range of OTC derivatives. "The motivation was initially driven by the equity business but the platform is also designed for other asset classes, such as credit and rates, FX and commodities," says William Lee, Asia ex-Japan head of equity derivatives.
The onshore OTC market is still relatively young in Korea but is expected to grow significantly as the regulator approves more licences and the products become more established. The potential is certainly there, says Lee, thanks to the large domestic insurance industry, which is expected to provide a substantial share of the investor base.
Big investors can already invest in the offshore market, but the development of an onshore market allows foreign banks to reach a much broader range of Korean investors. "With an onshore platform we can really start to increase our local client base and that's key to us," says Lee. "We expect Korea to become one of the key markets for us in Asia."
An added attraction of securing the OTC licence is that it also allows JPMorgan to act as a liquidity provider for warrants û Korea is one of the world's most active warrants markets.