As the KOSDAQ active exchange-traded fund (ETF) made its debut on the 10th, as feared, the share prices of the constituent listed companies swung sharply. Some stocks with heavy weightings were designated as investment caution items after the market close.

Authorities have pushed for the launch of related ETFs to revitalize KOSDAQ, but concerns have persisted that large inflows into smaller stocks could heighten volatility. Analysts said those concerns ultimately materialized with the first product launch.

A closing price appears on the ticker in the dealing room at Hana Bank's headquarters in Jung-gu, Seoul, on the afternoon of the 11th. The KOSPI closes at 5,609.95, up 77.36 points (1.40%) from the previous trading day. The KOSDAQ ends at 1,136.83, down 0.85p (0.07%), and the dollar-won exchange rate is 1,466.5 won, down 2.7 won. /Courtesy of News1

According to the Korea Exchange (KRX) information data system on the 11th, the share prices of 11 stocks among KOSDAQ active ETF constituents, including Qurient, Sungho Electronics, Sungwoo Hitech, and PIM Korea, surged more than 20% the previous day.

Some stocks whose prices spiked were immediately designated as investment caution or warning items. After the previous day's market close, the exchange disclosed Sungho Electronics and Qurient as investment caution items and PIM Korea as an investment warning item. In particular, for Qurient and Sungho Electronics, besides the short-term surge, an abnormally high share of buying by a small number of specific accounts was cited as a reason for designation.

Unlike the KOSPI, which is centered on large caps, KOSDAQ is characterized by small and mid-caps with market capitalizations of about 1 trillion to 2 trillion won, leading to the view that massive ETF-driven inflows overloaded supply and demand. The trigger was that Qurient, Sungho Electronics, and PIM Korea carried high weightings in products launched separately by Samsung Active Asset Management and Timefolio Asset Management on the 10th.

An asset management industry official said, "A kind of 'wag the dog' phenomenon is occurring, where funds flowing into ETFs are shaking share prices."

These stocks also saw a sharp increase in trading value. For Sungho Electronics, the previous 5-trading-day (Mar. 3–9) average daily trading value was 111.5 billion won, but the previous day's trading value reached 309 billion won. Qurient's trading value also skyrocketed 425%.

Graphic by Son Min-gyun

Some have suggested the possibility that information on stocks included in ETFs was leaked in advance. According to the industry, securities firms that serve as ETF liquidity providers (LPs) receive the PDF (Portfolio Deposit File) four trading days before the ETF is listed. That means they can know information that could affect stock prices, such as the ETF's constituents before listing.

In fact, for Qurient and Sungho Electronics, which drew attention due to their high weighting in KOSDAQ active ETFs, their share prices showed an abnormal surge four trading days before the ETF listing date. An industry official said, "Stocks with large market caps are not greatly affected, but for smaller caps, even information known to some market participants can significantly move share prices."

The financial authorities say they will examine whether KOSDAQ active ETFs are affecting the market and whether there is potential abuse of inside information. A Financial Supervisory Service official said, "The rise in the prices of the constituents of a listed ETF is not something that can be reviewed institutionally," adding, "However, if there was the use of undisclosed information or unfair trading, it could be a problem."

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