Mutual Funds Also Listed and Traded Like ETFs

Financial Services Commission's 'Measures to Enhance Competitiveness of Public Offering Funds'
Establishment of 'Zero Class' with Different Sales Fees

Financial Services Commission. Photo by Dongju Yoon doso7@

In the future, over-the-counter (OTC) public offering funds will be able to be listed and traded like exchange-traded funds (ETFs). Additionally, a new type of fund called "Zero Class," which has different fee rates depending on the fund distributor, will be introduced. Along with this, a regulatory system including internal controls equivalent to those of financial companies will be established to strengthen the responsibilities of fund distributors, asset management companies, and related fund institutions.

On the 3rd, the Financial Services Commission announced these measures in the "Plan to Enhance the Competitiveness of Public Offering Funds" at the Government Seoul Office.

First, a plan is being promoted to list general public offering funds on the stock exchange so they can be traded like stocks. Different fees will be applied depending on the distributor, and sales commissions linked to fund performance will also be introduced. According to the Financial Services Commission, this is functionally identical to the introduction of listed funds without index linkage requirements.

Until now, public offering funds have been criticized for having more complex and longer subscription (purchase) and redemption (sale) procedures and periods compared to regular stocks, making them relatively less advantageous than ETFs. While ETFs have no separate sales fees, the sales commission for equity ETFs is about 0.02%, whereas for equity public offering funds excluding ETFs, it is around 0.59%.

Currently, closed-end public offering funds that are listed have almost no trading activity. The Financial Services Commission attributes this to the absence of liquidity providers (LPs) who quote prices, and plans to ensure that newly listed public offering funds will have LPs.

Within this year, public offering funds that are listed and traded on the market will emerge by utilizing the financial regulatory sandbox system. Subsequently, legislative efforts will be made next year through amendments to the Capital Markets Act.

Revisions will also be made to the "New Product Protection System," which restricts the listing of similar innovative ETF or exchange-traded note (ETN) products for a certain period (six months). To ensure substantive operation of the system, the current quantitative evaluation method will be replaced with a qualitative evaluation method, and a "New Product Review Committee" will be established and operated within the exchange.

For original ETFs, ETNs, and similar products, the system that limits the listing of similar products for six months to support creative product development will be supplemented. The main point is to change the current quantitative criteria, which are difficult to apply in practice, to qualitative evaluation criteria.

Evaluation criteria with a maximum score of 5 points will be prepared for originality, creativity, and contribution, and if the overall average score is 4 points or higher, the product will be designated as a new product. To ensure objectivity and fairness, a New Product Review Committee will be organized and operated within the exchange.

Along with this, diversification and externalization of sales commissions for public offering funds are also key points. Currently, under the Capital Markets Act, sales commissions are uniformly set in advance by the asset management company, not the distributor, and are directly deducted from the fund assets. Because of this, investors have continuously found it difficult to clearly understand the nature of the sales commissions they pay.

Therefore, a separate type called "Zero Class" (tentative name) will be newly established, where the distributor does not receive sales commissions from within the fund assets but directly collects sales commissions from the investor's deposit and withdrawal account. The financial authorities expect that the introduction of competition will diversify sales commissions (rates) by distributor within the legal limit of 1%.

Externalization of sales commissions will be introduced first for public offering funds included in trust and discretionary accounts such as Individual Savings Accounts (ISA) and WRAP accounts, where fees are directly received from investors. Later, this will be expanded to online public offering funds. For funds with externalized sales commissions, sales commissions linked to fund performance will be allowed, so that if performance is low, sales commissions will also be reduced.

Comparison and recommendation services for public offering funds by fintech companies will also be promoted. Go Young-ho, Director of Asset Management, said, "It is true that there was an application for innovative financial services in this area, and our position was to start with deposits and insurance first," adding, "We are considering trying this with fintech companies, mainly MyData operators, who will compare and recommend public offering funds, excluding financial company affiliates that are likely to have significant market dominance."

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