FSS Warns Investors to Be Cautious with Commodity ETFs and ETNs Amid Oil Price Volatility

The Financial Supervisory Service has requested that securities companies, asset management firms, and others provide detailed explanations to investors about the risks associated with commodity-related products. This measure aims to minimize the extent of potential investor losses amid heightened oil price volatility due to the ongoing war in the Middle East.

On the morning of March 12, the Financial Supervisory Service, led by Deputy Governor Hwang Sunoh of the Capital Markets and Accounting Division, held a meeting with commodity market experts, including those specializing in crude oil, to discuss the impact on the domestic capital market and potential response measures.

Deputy Governor Hwang stated, "If a prolonged blockade of the Strait of Hormuz leads to disruptions in crude oil supply, it could affect the real economy and the overall financial market. Therefore, securities companies and asset management firms should proactively examine and manage related risks, and prevent investor losses by thoroughly explaining the specific characteristics and potential losses of related products, such as commodity Exchange-Traded Notes (ETNs) and Exchange-Traded Funds (ETFs)."

The trading volume of related products is currently on the rise. In the fourth quarter of last year, the trading volume for crude oil-based ETNs and ETFs stood at 19.9 billion won, but from March 1 to March 10, it surged to 167.6 billion won.

During the meeting, experts pointed out that leverage and inverse products could be exposed to loss risks. This is because rapid fluctuations in oil prices may cause a gap between the actual value and price of commodity ETNs and ETFs. In particular, losses in leverage and inverse products can increase significantly over a short period of time.

The Financial Supervisory Service plans to continuously monitor the sales trends of commodity markets and related financial investment products, and will collaborate with the industry to protect investors.

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