Even as Nickel ETN Turns Worthless, 'Speculative Demand' Persists... Crude Oil Faces Trading Suspension Warning

[Asia Economy Reporter Lee Seon-ae] Despite the "Daeshin Inverse 2X Nickel Futures ETN(H)" recently being delisted with an indicator value of 0 won, causing investors to incur total losses, the rush to invest in exchange-traded notes (ETNs) continues. Even though financial authorities, judging it as speculative demand, have issued investment caution alerts, trading volume has surged, leading to overheating. The problem is that the divergence rate of crude oil products, where investors' trades are concentrated, has increased, prompting a trading suspension warning.

According to the Korea Exchange on the 23rd, the closing divergence rate of the "Samsung Inverse 2X WTI Crude Oil Futures ETN(H)" was 10.21% on the 14th, 8.50% on the 16th, 9.88% on the 18th, and 6.75% on the 21st. Besides this product, other crude oil inverse ETNs have also maintained high divergence rates. For example, the "Shinhan Inverse 2X WTI Crude Oil Futures ETN(H)" had a closing divergence rate of 13.37% on the 21st, with 15.53% on the 14th, 10.01% on the 16th, and 12.07% on the 18th. The "QV Inverse Leverage WTI Crude Oil Futures ETN(H)" recorded closing divergence rates of 7.74% on the 14th, 6.98% on the 16th, 6.64% on the 18th, and 7.42% on the 21st.

Intraday divergence rates are also high. On the 21st, the intraday divergence rates for "Shinhan Inverse 2X WTI Crude Oil Futures ETN(H)", "Daeshin Inverse Nickel Futures ETN(H)", "Samsung Inverse 2X WTI Crude Oil Futures ETN(H)", "QV Inverse Leverage WTI Crude Oil Futures ETN(H)", and "Shinhan Inverse WTI Crude Oil Futures ETN(H)" were 19.12%, 17.59%, 11.73%, 6.98%, and 3.67%, respectively. Their maximum divergence rates over the past three months were 24.17%, 142.63%, 18.39%, 14.33%, and 4.89%, respectively.

The divergence rate is an indicator showing the difference between the ETN market price and the indicator value, allowing confirmation of whether the market price is overvalued or undervalued. A 10% divergence rate means purchasing the product at a 10% premium. When the divergence rate increases, prices become abnormally formed, potentially causing investment losses. The Korea Exchange has set management obligation ratios for ETNs with domestic assets at a divergence rate within 3%, and for those with overseas assets within 6%. For domestic assets, if the divergence rate exceeds 6%, and for overseas assets if it exceeds 12%, the product goes through three stages: △delisting warning △designation notice △designation, and is then classified as an investment caution item. Once designated as an investment caution item, single-price trading is implemented for three trading days. If during this period the divergence rate exceeds 9% domestically or 18% overseas, trading is suspended for one trading day.

Already, the "Shinhan Inverse 2X WTI Crude Oil Futures ETN(H)" has gone through the three stages and been designated as an investment caution item, switching to single-price trading. The "Samsung Inverse 2X WTI Crude Oil Futures ETN" is currently at the designation notice stage and will be designated as an investment caution item if the divergence rate exceeds 12% within the day.

Nevertheless, enthusiasm has not cooled. The average daily trading value in 2021 was only 44.3 billion won, but in January this year, it increased by 12.5% to 46.4 billion won. In February, it rose by 32.2% to 61.3 billion won. Trading volume has surged further this month. As of the 21st, the average daily trading value this year was 63.6 billion won. Individual investors mainly trade crude oil (71.5%). Notably, trades in high-risk products classified as leverage and inverse products accounted for 46.8%.

A Korea Exchange official said, "Due to recent international geopolitical instability, volatility in major commodity futures prices has expanded, causing ETN indicator values to fluctuate rapidly," adding, "Investors should be cautious as large-scale investment losses may occur when investing in highly volatile products such as high-leverage commodity futures." The Financial Supervisory Service also urged, "The unstable situation in the commodity market is likely to continue until the Ukraine issue is resolved," and advised, "Since the exchange can take measures such as designating investment caution items and suspending trading, investors should verify these conditions."

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