The domestic exchange-traded fund (ETF) market has shown remarkable growth of 40% over the past year, but voices within the asset management industry still express disappointment. This suggests that more products could have been launched. The Korea Exchange, which holds the reins on ETFs, has limited the number of listings due to a lack of personnel, which has prevented asset managers from launching more products. ETFs are launched by asset managers and are traded in the market after passing the Korea Exchange's review.
According to the financial investment industry on the 2nd, last year large firms such as Samsung Asset Management and Mirae Asset Global Investments listed 2 to 3 ETFs each month, while smaller firms listed 1 to 2 ETFs. Although it is not a regulation, if firms wish to list more than that, the Korea Exchange has an unspoken rule of pushing the review to the following month.
As a result, the number of ETFs listed by Samsung Asset Management and Mirae Asset Global Investments was identical at 24 each. Industry insiders agree that this is more a result of a competitive culture between the two companies launching products simultaneously rather than a mere coincidence, combined with the Korea Exchange's 'adjustment review.'
For asset managers with relatively more personnel who can focus on product development, this type of adjustment review acts as an obstacle. This is especially true during a surge in ETFs like last year. An industry insider noted, "If things had gone like before, the number of listings would have been twice as much last year," explaining that this was supported by investor demand.
Due to the effective listing restrictions, there are cases where prepared thematic ETFs miss their launch opportunities. Some themes fall down the priority list as other urgent products are prioritized for listing. If a relevant ETF is launched by another company first, it can lead to a situation where, despite all the preparations, the product cannot be launched. This is because the competition in ETFs hinges on 'who launches it first' to attract more investor funds.
In fact, a certain asset manager prepared a quantum computing ETF but put the plan on hold after a similar product was launched by Kiwoom Investment Management. Consequently, Kiwoom's U.S. quantum computing ETF sold a total of 7.5 billion won within just five minutes of its launch. For Kiwoom Investment Management, with a market share of around 2%, this was a big success.
This insider noted, "From the perspective of securities firms (which buy initially when an ETF is launched to distribute shares to individual investors for profit), it's become advantageous for smaller firms as larger firms can't launch, forcing them to step in as liquidity providers (LPs)." They pointed out that this has resulted in a market favorable to smaller firms due to the Korea Exchange's listing restrictions.
Recently, as ETFs have emerged as almost the only source of income for asset managers, competition among firms has intensified, prompting evaluations that the Korea Exchange has further tightened its adjustment review. In the past, a series of ETFs would have counted as one product, but now they are treated individually, whether it be 3 or 4 products.
For instance, if an asset manager plans to list an ETF that tracks the U.S. Standard & Poor's (S&P) 500 index in a 1x long format along with a 2x leverage ETF and an inverse ETF simultaneously, previously the Korea Exchange would have regarded these ETFs as a series and counted them as one. Now, however, they are treated as three.
The Korea Exchange is currently suppressing firms that have the capacity to launch 4 or 5 products in a month. As a result, the market share of Samsung Asset Management and Mirae Asset Global Investments in the overall ETF market dropped from 77.23% at the beginning of the year to 74.49% by the end.
There are also criticisms regarding whether it is appropriate for regulatory authorities to intervene directly to resolve the oligopoly system. An academic insider, who requested anonymity, stated, "While brand (of the asset manager) is important in the ETF market, the competitiveness of the product is just as crucial," adding, "It is questionable whether limiting the number of listings is effective in preventing oligopoly."
In response, the Korea Exchange explained that there is no restriction on the number of listings per asset manager, but that it considers internal personnel who assess the suitability for listing. Currently, there are 5 staff members handling this related work.
A dedicated team for ETF listings was established in 2022 and is still operational, but the market has grown more than twice the size since then, leading to complaints from the asset management industry. The Korea Exchange stated, "There is a limit to what can be processed internally (in the listing review process)," affirming that it appropriately allocates listings based on this limit among asset managers.