Financial regulators have allowed the listing of government bond leveraged exchange-traded funds (ETFs), which would have the investment effect of extending the maturity to 20 years with twice as much price fluctuations, thus diversifying the Korean ETF market. 

The regulators also announced that ETFs with less than 5 billion won in assets or less than 5 million won in average daily trading volume for six months will be delisted from the bourse. 

These are among a package of comprehensive steps the Financial Services Commission (FSC), the Financial Supervisory Service (FSS), and the Korea Exchange (KRX) jointly announced on Sept. 3 to stabilize the Korean ETF market. 

A step in focus is the introduction of government bond leveraged ETFs. The ETFs are designed to invest in government bond spot and futures markets to make profits above market interest fluctuations. Currently, the Kospi 200 Index leveraged ETFs are listed, but there are no government bond leveraged ETFs.

An FSS official said the upcoming government bond leveraged ETFs would have the effect of investing in government bonds with a 20-year maturity. 

Asset management companies will be allowed to list diverse ETFs utilizing over-the-counter swaps and derivatives. 

Regulatory authorities established the guidelines for delisting small ETFs from the bourse to prevent mismanagement and management inefficiency stemming from a flood of small EFTS. ETFs with less than 5 billion won in assets and less than 5 million won in average daily trading volume for a six-month period are subject to delisting. 

They decided to reinforce the requirements for listing ETFs, so the listing of new ETFs, which are not differentiating themselves from existing ones in terms of index basis and the purpose of products will be regulated sternly. 

Regulators also decided to lower fund expenses ETF investors pay to asset management firms. ETF investors in Korea shoulder about 0.4 percent of investment amounts for fund expenses, higher than the 0.32 percent in the United States and 0.35 percent in Singapore. 

10TH ANNIVERSARY 

The ETF market marked its 10th anniversary since its launch in October 2002 at the Korea Exchange, rising to the 10th largest in the world with huge growth potential. 

The KRX said the ETF market has grown tremendously in the past decade in its key areas including the scale, diversity of commodities, and investor numbers to propel it to rank 10th largest in the world.

Total net assets expanded 39 times during the period to 13.4 trillion won this year from 340 billion won in 2002, reaching a fast growth phase following the formation of its market base.

The number of products increased to 129 this year, up from just four in 2002, progressing to be a high-tech market with huge diversity in investment assets, regions, and investment strategy, the stock exchange reported.

The number of investor accounts jumped to 380,000 this year from just 10,000 when it was launched in 2002, with so many investors participating in the ETF market and with the number of employees rising to 250 from only 20, enhancing its competitive edge as an investment market and creating many jobs to help the national economy.

The KRX, encouraged by its enormous growth, plans to see that its total assets grow to 120 trillion won and the number of growth investment products expand to around 350 to rank seventh largest globally by 2020 under the strategy drawn up based on its past performance.

The strategy also is designed to create a new corner for the capital market in a bid to speed up the fusion of the real economy and finance as a window for investors to gain easy access to overseas markets.

The measures to push the strategy include building a base for quality growth, the reform of regulations for initial public offerings through the introduction of such provisions as strengthening the entry and exit, and new commodities listing. The screening of the deliberations on IPOs and their transparency will be based on the guidelines to be established.

Considerations will be given to the introduction of overseas ETFs in the domestic stock market, reformative ETFs, and active ETFs. Institutional investors will be invited to invest more in ETFs and expand their roles by luring retirement funds and other funds to participate in the ETF market as the sale of ETFs by securities firms will be strengthened and education on institutional investors and public relations on the ETF market will be held often and steadily.

Market management will be developed to be like those in advanced countries in order to protect the investors with derivative products of ETFs that are continuously regulated and small, and ETFs with low transaction rates will be taken care of. ETF products will be classified based on type and will be tightly managed under the new price ability system to be introduced later.

The tasks to be taken care of in the future include the development of new creative products, as traditional ETF products have no room for further growth if there is to be continued sustainable growth of the market.

It has become necessary to expand the ETF market since it did not have its own sales network for the continued growth of its annual sales. It has become extremely necessary for the stock exchange and asset management firms to jointly conduct education and marketing programs at the same time in the most effective way. When the influence of the ETF market grows, along with its expansion, the equipment for the stabilization of the market to be introduced will be discussed.

Since 2011, ETF transactions increased substantially, with most of them limited to a small number of items. Leverage and inverse in absolute terms have not been excessive compared to the global market.