Restriction on double-sized ETN new listings lifted... "Will trading volume and returns plunge, and vitality return?"

[Asia Economy Reporter Lee Seon-ae] The Korea Exchange and securities firms are taking steps to revitalize the shrinking Exchange-Traded Note (ETN) market. As the Korea Exchange lifts restrictions on the listing of new leverage and inverse ETFs, securities firms are rushing into the market to expand it.

According to the financial investment industry on the 10th, NH Investment & Securities newly listed the "QV Inverse US IT TOP5 ETN(H)," which equally tracks the decline rate of the top five IT and internet sector companies by market capitalization (Apple, Google, Amazon, Facebook, Microsoft) listed and traded on the US stock market (New York Stock Exchange, NASDAQ). This product is an inverse (-1x) ETN of the "QV US IT TOP5 ETN(H)" listed by NH Investment & Securities on July 31, 2017. Its profit and loss are linked only to the fluctuations of the underlying index, and it is a currency-hedged product that does not require additional consideration of profit and loss due to KRW-USD exchange rate fluctuations.

Earlier, KB Securities newly listed "KB Leverage Gold Futures ETN(H)" and "KB Inverse 2X Gold Futures ETN(H)" on the 5th, which invest in gold futures listed on COMEX. They track +2x and -2x the daily fluctuations of gold futures listed on COMEX, respectively.

The reason securities firms are launching new ETNs is that the shackles that had been binding them have been loosened. In April last year, a large-scale loss incident occurred with leverage ETNs based on West Texas Intermediate (WTI) crude oil futures. Subsequently, to curb excessive speculative demand for leverage and inverse ETNs, the Korea Exchange announced restrictions on the listing of new 2x products by issuing securities firms. Although this was not a mandatory rule but an unofficial one, it effectively meant that even if securities firms created products and requested new listings, they would be rejected. Therefore, there were no new related products such as leverage ETNs with 2x the underlying asset volatility or inverse ETNs with -2x.

However, in June, the Korea Exchange announced through a private meeting with securities firms that it would lift the restrictions on new listings of 2x products starting in the second half of the year. At the same time, it urged stable management. An industry insider said, "The condition for new listings is that the issuing securities firms manage the tracking error well, minimize volatility, and establish mechanisms for stable operation."

Accordingly, attention is focused on whether the ETN market can regain vitality. As volatile products decreased, investors have turned away from the market, and trading volume has significantly declined. In July alone, the average daily trading value of ETNs was about 29.8 billion KRW, down 4.7% from the previous month. In June, it was 31.2 billion KRW, a 34.2% decrease from the previous month. Compared to last year's average daily trading value of 93 billion KRW, which increased by 301.2% year-on-year, this is a shrunken level. Returns are also poor. The return for July was only 0.52%. The return for this year through the end of July was recorded at 6.21%.

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