ETNs with Over 100% Premium to Be Delisted Starting Late July

[Asia Economy Reporter Moon Hyewon] From the end of next month, Exchange Traded Notes (ETNs) with a divergence rate of 100% or more between the indicative value and the market price will be delisted. If the real-time indicative value per security at the close of the regular market falls by 80% or more compared to the previous day or is below 1,000 KRW, the relevant ETN may also be subject to early liquidation.

The Korea Exchange announced on the 19th that it plans to revise the listing regulations and enforcement rules of the KOSPI market to include these provisions.

The amendment will be implemented from the 27th of next month after collecting industry opinions and obtaining approval for the regulatory revision from the Financial Services Commission.

The Exchange will also push for regulatory amendments to strengthen the management of ETN Liquidity Providers (LPs) starting from October 5th.

According to the amendment, the evaluation cycle for LP activities will be shortened from the previous three months to one month, and depending on the evaluation grade, new liquidity supply contracts will be restricted for a certain period.

For example, if an LP receives the lowest evaluation grade, F grade, new ETN listings will be prohibited for two months. If the F grade is received consecutively twice, new listings will be banned for three months, and if received three times consecutively, the ban will extend to six months.

Even if an LP receives the second-lowest grade, D grade, new listings will be prohibited for one month.

Previously, the price of West Texas Intermediate (WTI) crude oil futures-linked ETNs surged abnormally in the KOSPI market, causing the divergence rate to far exceed normal levels.

In particular, the WTI crude oil futures leveraged ETN, which tracks twice the daily price fluctuation rate of WTI futures, saw the divergence rate of a specific issue approach 1000% in April, trading at prices more than ten times the indicative value.

In such cases where the divergence rate surges and ETNs are purchased at prices higher than the indicative value, investors incur losses during the process when the market price converges back to the indicative value and normalizes.

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