Crude Oil Price Crash Sparks Outrage... Retail Investors Predict Multiple Lawsuits

Investment Caution for ETN Products
Consumer Alert Issued as 'Risk'
"Financial Authorities Fail to Take Appropriate Measures
Prolonged Trading Suspension Causes Confusion"

"ETF Also Changes Monthly Contracts Without Notice"
Preparing Lawsuit Against Samsung Asset Management

[Asia Economy Reporter Minji Lee] The crude oil exchange-traded note (ETN) products have plunged to the lower limit immediately after trading resumed, causing individual investors' losses to snowball. This is because investors who bet on rising oil prices purchased the products at prices higher than their actual value and then flooded the market with sell orders. Given the leveraged nature of these products and growing concerns about delisting, it is expected that many stocks will hit the lower limit on the next trading day. Some investors are showing signs of filing lawsuits, claiming that securities firms and financial authorities have exacerbated investors' losses through improper responses.

According to the Korea Exchange on the 28th, the market capitalization of four leveraged crude oil ETNs listed domestically was 279.975 billion KRW, down 154.5 billion KRW from 434.475 billion KRW recorded on the previous trading day (the 24th). After trading resumed, two of the four products?'Samsung Leverage WTI Crude Oil Futures' and 'QV Leverage WTI Crude Oil Futures'?which resumed trading after a week, hit the lower limit price (60% threshold) early in the session, causing the market capitalization to decline. Compared to the 518.76 billion KRW on the 21st, the market capitalization of the four products evaporated by about 238.7 billion KRW within a week. In 'Shinhan Leverage WTI Crude Oil Futures' and 'Samsung Leverage WTI Crude Oil Futures,' which attracted many individual investors, 99.62 billion KRW and 47.75 billion KRW were lost in a single day, respectively.

This appears to be because individuals turned to selling as the products faced the risk of disintegration due to falling oil prices. On the last trading day, the 22nd, individuals bought 1.9957 billion KRW worth of Shinhan Leverage WTI Crude Oil Futures ETNs, but on the 27th, they net sold 592.1 million KRW. Investors in Samsung Leverage WTI Crude Oil Futures ETNs, which traded for the first time since the 17th, also put 39.39 million KRW worth of shares on the market. Net buying also disappeared in 'Mirae Asset Leverage Crude Oil Futures Mixed ETN' and 'QV Leverage WTI Crude Oil Futures ETN.'

Despite the ETN prices falling, the divergence rate between the indicative value (IV) and ETN prices exceeded 30%, leading to a three-day trading suspension for the four ETN products. The market expects that many stocks will hit the lower limit on the next trading day, as the resumption of ETN trading is scheduled for the 6th of next month. Although the divergence rate for Shinhan Leverage WTI Crude Oil Futures decreased from 352% to 104%, it is judged that one or more additional lower limit hits will be necessary to align with the actual IV. Samsung Leverage Crude Oil ETN (331%) and QV Leverage Crude Oil ETN (242%), which had been under long-term trading suspension, are still inflated compared to their actual prices.

A securities industry official said, "As the trading suspension period lengthens and June crude oil prices remain unstable, more investors are turning to selling due to deteriorating market sentiment," adding, "It seems that the divergence bubble, which was built up solely by individual investors' buying, is deflating."

The financial authorities have issued two consumer alerts labeled 'Risk' for leveraged crude oil ETN products, unusually urging investors to exercise caution. The exchange, unable to manage the divergence rate even with additional liquidity provider (LP) listings, hastily implemented single-price trading and trading suspensions to calm the abnormal market sentiment.

However, on online securities forums and elsewhere, claims have been raised that the financial authorities and the exchange's improper responses have worsened the damage. One investor said, "When the LP lost its ability to manage sell orders, the financial authorities and the exchange should have taken appropriate measures but failed to do so," adding, "The subsequent trading suspension policy, implemented to protect investors, has instead caused market confusion." The investor lamented, "During the forced long-term trading suspension in the crash market, the divergence rate increased, and investors could not even seize the opportunity to sell at desired prices."

Voices of investors who invested not only in crude oil ETN products but also in ETF products are growing louder. They claim that the 'KODEX Crude Oil Futures WTI ETF' product increased investors' losses by switching the underlying assets from June futures to July, August, and September futures without prior notice. They argue that the ETF failed to fully reflect the gains in June futures, resulting in missed profits. Online, about 7,000 investors claim to have suffered losses and are preparing lawsuits against Samsung Asset Management.

One investor pointed out, "Although the prospectus clearly states that it tracks June futures, the rollover (asset replacement) was conducted without prior notice outside the rollover period," adding, "Especially, due to the asset replacement, the iNAV (intraday net asset value) was not properly reflected for two days on the 23rd and 24th, causing significant damage to investors who were unaware and invested." Samsung Asset Management countered that the asset replacement was unavoidable due to the sharp drop in June futures prices and that the discrepancy with iNAV was notified to investors via their website.

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