LP Supply Up to 4 Times Higher, Will Soaring Premium Rates Decline?

Samsung and Shinhan's 3 Crude Oil ETNs
Trading Suspended... Second Time This Month
Premium Rate Surges Up to 90% Recently

Samsung Securities Doubles Listed Volume to 20 Trillion
Shinhan Investment Increases to 40 Trillion, Fourfold
Brokerage Industry: "Exceeds Market Cap, Prices Likely to Drop Significantly"

[Asia Economy Reporter Minji Lee] As the premium rate on crude oil exchange-traded notes (ETNs) continues to remain high amid a surge in investment, financial authorities and issuers are rolling out extraordinary measures one after another. Shinhan Financial Investment and Samsung Securities, issuers of West Texas Intermediate (WTI) leveraged ETNs, plan to increase liquidity provider (LP) volumes up to four times to control the premium rate.

According to the Korea Exchange on the 20th, trading of three products?'Samsung Leverage WTI Crude Oil Futures ETN,' 'Shinhan Leverage WTI Crude Oil Futures ETN,' and 'QV Leverage WTI Crude Oil Futures ETN'?was suspended in the stock market on the same day. This marks the second trading suspension for these products this month. After an abnormal trading suspension on the 16th due to irregular investment activities, the exchange took out the trading suspension card again as the overheated investment atmosphere did not subside.

These products have recently seen their premium rates soar up to 90%, trading at prices higher than the actual price of the underlying assets. The premium rate indicates the difference between the underlying asset's Intraday Indicative Value (IIV) and the current price. The larger this figure, the less the price reflects the actual asset value.

ETNs rely on LPs to manage bid and ask quotes through liquidity provision. When investors attempt to buy a specific product, LPs sell the opposite volume to reduce the premium gap between the ETN and the IIV. According to Korea Exchange regulations, the premium rate must be maintained below 6%, but due to speculative activities in crude oil ETNs, LPs have been unable to manage quotes within the permissible range.

As of 10 a.m. on the day, the intraday premium rate of Samsung Leverage WTI Crude Oil Futures ETN exceeded 120%. Although this product was under trading suspension, the premium rate between the last closing price and the real-time crude oil price (1,012 KRW) appears to have widened further due to the decline in crude oil prices. An investor who purchased this product at the closing price of 2,085 KRW on the 17th effectively paid 100% more than the actual crude oil price.

Previously, financial authorities took strong market measures against the leveraged WTI crude oil ETNs forming abnormal prices. They issued the highest-level consumer alert, 'Risk,' for the first time and switched to a single-price trading system, but the speculative frenzy did not subside, and the premium rate increased further.

Issuers are also actively working to reduce the premium rate by significantly increasing additional listing volumes. Samsung Securities initially planned to list about 1 trillion KRW (face value basis) worth of volume but raised the issuance limit to 2 trillion KRW. Shinhan Financial Investment plans to sequentially list four times the originally planned volume, increasing from 1 trillion KRW to 4 trillion KRW, to lower the premium rate.

A Korea Exchange official said, "As the LP listing volume increases, we expect the premium rate to drop significantly compared to now. However, since crude oil prices continue to decline, we are closely monitoring market conditions."

The securities industry expects that the premium rate could decrease substantially as LP supply volumes have increased significantly compared to before. Until now, prices surged mainly due to individual investors, but if LPs offer quotes closer to the theoretical price (actual indicative value price) at lower prices, the premium rate can fall. A securities industry official explained, "Shinhan Financial Investment and Samsung Securities are listing volumes exceeding the current market capitalization to reduce the premium rate. Since LP volumes have increased, quotes are expected to drop significantly compared to before."

Meanwhile, trading suspensions on Shinhan Financial Investment's crude oil ETNs will be lifted on the 21st following additional volume listings. Samsung Securities' trading suspension will be lifted on the 23rd.

This content was produced with the assistance of AI translation services.