KSD Begins ETN Redemption Payment Deduction... Expected to Alleviate Liquidity Risk

"Annual Total Repayment Amount Expected to Decrease by 2.7458 Trillion KRW"

[Asia Economy Reporter Lee Seon-ae] The Korea Securities Depository (KSD) will start the redemption payment deduction process for Exchange Traded Notes (ETNs) from next month, September 1. This expands the redemption payment deduction process, which was previously only provided for Equity-Linked Warrants (ELWs), to ETNs. The aim is to reduce the funding burden on issuing companies and alleviate liquidity risks.

According to KSD on the 31st, from September 1, when issuing companies redeem ETNs, the portion of the redemption payment paid to KSD that will be subsequently reimbursed to the issuer will be deducted, and only the net payment amount will be settled. Previously, the issuing company paid the entire redemption amount to investors through the registration institution (KSD), including the quantity held for the role of liquidity provider (LP). As a result, most of the redemption payment made (over 99%) was reimbursed on the same afternoon to the issuing company, which is the account management institution for the LP holdings. ETN issuing companies had the inconvenience of having to raise large-scale funds each time to prepare the entire redemption amount, including the LP holdings to be reimbursed.

KSD expects that through the deduction settlement, ETN issuing companies will reduce liquidity needs by approximately KRW 2.7458 trillion, which corresponds to 99.3% of the total redemption amount of KRW 2.7647 trillion over the next year.

A KSD official said, "By expanding the deduction settlement process to ETNs in addition to the existing ELWs, we expect a virtuous cycle effect leading not only to a reduction in the liquidity scale of redemption payments for issuing companies but also to the revitalization of the entire derivative-linked securities market."

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