S. Korea to boost exchange traded fund market via deregulation
2012-09-03 17:28:20
South Korean financial regulator said Monday that it planned to boost the exchange traded fund (ETF) market by deregulating rules on the index-tracking fund.
According to the Financial Services Commission (FSC), pension funds will be allowed to invest in the ETF within 40 percent of total contributions, while protection for investors into the ETFs will be strengthened.
The regulator planned to diversify products in the ETF market by allowing various products such as government bond ETF to be traded in the near future.
An ETF is an investment fund traded on stock exchange that tracks an index such as a stock index or bond index. The fund can be attractive thanks to low costs, transparency and ample liquidity.
The South Korea's EFT market has grown around 36 times to 12.4 trillion won (10.96 billion U.S. dollars) in July since its inception in October 2002. The number of ETFs increased around 30 times to 122 over the same period.
However, the ETF accounted for 3.6 percent of the total fund market in South Korea, much lower than 9.1 percent for the United States. By product, the stock index-linked ETFs made up around 67 percent of the total, while retail investors were main participants in the market, with their share of 44 percent.
In a bid to boost participation of institutional investors, the regulator planned to allow pension funds to invest in the ETFs within 40 percent of their total contributions, while enabling pension funds to invest indirectly into government bond ETFs as well as stock ETFs.
The regulator will allow long-term government bond ETFs to be traded on local bourse within this month as part of efforts to improve the lop-sided product mix. The long-term government bond ETF can be attractive for long-term investors as it can double the duration by mixing spots and futures.
Synthetic ETFs, which duplicate an index via the use of derivatives such as an over-the-counter swap, will be introduced within the second half of this year after setting up the regulatory framework, the FSC said.
The FSC, meanwhile, will strengthen protection for investors of the ETFs given active participation in the market by retail investors, while closely monitoring the ETF market, especially small-sized ETFs.