On the 27th, when major asset managers simultaneously listed 16 single-stock leveraged and inverse exchange-traded funds (ETFs), a large influx of investment money poured into those ETFs. Competition among managers seeking to attract funds was fierce, and some suspected cases of excessive padding of trading volume were also detected.
On the day, the trading volume and value of the single-stock leveraged and inverse ETFs on Samsung Electronics and SK hynix recorded 416.78 million transactions and 10.4042 trillion won, respectively.
As U.S. stocks hit a record high led by tech shares the previous day, Korea's market also surged from early trading. With investor preference for tech stocks strengthening, the debut of leveraged ETFs that track the price swings of bellwethers Samsung Electronics and SK hynix at twice the rate drew a large influx of investment money.
On the day, Samsung Electronics and SK hynix rose 2.68% and 9.31%, respectively. Thanks to that, the leveraged ETFs on Samsung Electronics and SK hynix also climbed about 4%–5% and 18%–19%, respectively. In contrast, the inverse 2x ETFs that track Samsung Electronics and SK hynix in the opposite direction plunged 5.98% and 18.7%, respectively.
As investor interest grew, the Financial Investment Education Institute's website also suffered outages. To transact single-stock leveraged ETFs, investors must complete mandatory training. Demand to obtain a completion number after taking the course surged, overloading the servers.
Competition among managers was also intense. Although there are differences in management strategy, 16 ETFs with essentially the same underlying assets and expected returns debuted simultaneously, overheating the competition among managers seeking to attract investment money.
In the industry, some said a chronic problem is recurring in which large managers mobilize securities firms that serve as liquidity providers (LPs) to inflate trading volumes.
In fact, in Samsung Asset Management's leveraged ETFs, a small to midsize securities firm with a very small retail footprint appeared side by side at the top of both the buy and sell windows.
In the case of the "KODEX SK hynix Single-Stock Leverage" ETF, LS Securities topped the list of buy and sell orders from early to late trading, while in the "KODEX Samsung Electronics Single-Stock Leverage" ETF, massive buy and sell orders poured out of SK Securities.
A person at an asset manager said, "Large managers are implicitly pressing small and midsize LP securities firms to repeatedly churn trades," adding, "This can greatly increase trading volume."
The person said, "Small and midsize securities firms are in a position where they need ETF allocations from large managers," adding, "When managers pressure them to boost trading volume, the firms have little choice but to comply, even while bearing losses such as fees from wash trades or system trading expenses."
Managers seek to increase ETF trading volume because funds flow more into ETFs with heavy volume. With many ETFs on similar themes listed, investors often choose products based on trading volume.
An expert in the financial investment industry who requested anonymity said, "Every time ETFs on the same theme are launched simultaneously, this phenomenon repeats, distorting the financial market and generating unnecessary expenses."