Korea Exchange (KRX) unveiled, on October 16, its strategy to develop the market for exchange-traded funds (ETF) and exchange-trade notes (ETN) in a move to promote these products as effective asset management tools in an “era of low interest rates and ageing society”.
The purpose of the plan is to take various initiatives, including the introduction of new products and the removal or relaxation of market regulations, to support the government’s policy to develop the ETF market announced on October 2, stated the exchange.
KRX’s plan is aimed at fostering the ETN market opened in November 2014 as another axis for asset management along with the ETF market.
Since the opening of the ETN market, it has shown strong growth in product issuance and trading volumes in less than a year, with the number of listed products increasing from 10 at the time of the market opening to 55 as of September 2015, and the products are diversified in terms of strategy and baskets, domestic and foreign, and overseas raw materials, according to KRX.
The trading value has soared 303 times, from KRW110m ($85,000) in November 2014 to KRW33.4bn ($25.8m) in September 2015, while the market capitalisation rose more than three times, from KRW469.7bn in November 2014 to KRW1.4tr in September 2015. Additionally, the Korean exchange raised this year’s goal for the number of new listings of ETPs from 80 (30 ETFs and 50 ETNs) to 100, with new products related to new indices including the KTOP 30 and Kosdaq 150 expected to be listed in October.
The KRX ETN market is expected to grow more than twice by 2020 and play a leading role in the ETP market in Asia, according to the exchange.
The exchange will implement a number of initiatives to develop the ETF market, including the introduction of new products in time to meet investors’ needs; the deregulation of the ETF market; the strengthening of the investor protection framework through the reinforced management of disparity ratio and provision of additional investment information; the internationalisation of the ETF market; and the introduction of non-taxable overseas equity ETFs, although this later measure is under discussion with the Ministry of Strategy and Finance.
KRX also said it will shorten the listing period from the current 45 days to 20 days, and will develop customised ETFs for investors “to satisfy the investment strategies of pension and other funds”, as well as thematic products.
The range of available derivative-based ETFs will also be expanded to include leveraged and inverse products and the listing of ETFs tracking the same index to facilitate the competition between management companies and expand a variety of choice for investors.
KRX also said it will provide educational materials including information on underlying assets, management styles and investment risk (currently undisclosed) providing comparative information between products as well as video training materials related to the risk of derivative ETPs.
In addition, an ETP comparative disclosure system will be introduced to compare one product with another in terms of management performance, investment risk and other factors for investors to have detailed and comparative information when they select products.
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