Korea Exchange Reconsiders After-Hours ETF Trading, Summons Brokers and Asset Managers

Exchange, asset managers and brokerages to meet on Aug. 10

After-hours ETF trading under discussion

Demand and readiness to be assessed

Concerns including ETF volatility to be heard

The Korea Exchange will gather working-level officials from asset managers and securities firms on Aug. 10 to hear their views as it decides whether to permit exchange-traded fund trading in the after-market session set to launch next month from 4 p.m. to 8 p.m. The meeting was arranged to revisit from scratch concerns that could arise from after-hours ETF trading after criticism mounted that market volatility has worsened since the introduction of single-stock leveraged products.

According to the financial investment industry, the bourse will discuss after-hours ETF trading scheduled for the Aug. 14 launch of the new session next month with division-head-level officials from asset managers and liquidity provider, or LP, staff at brokerages. Asset managers that expressed interest in after-hours ETF trading in a preliminary demand survey conducted before single-stock leveraged products were introduced on May 27 are expected to attend.

The exchange plans to determine whether those firms still intend to trade ETFs in the after-market session and how far preparations have advanced. It will also hear industry views on whether to prohibit not only single-stock leveraged products but also leveraged ETFs that track the Kospi and Kosdaq indexes. A key part of the meeting will be an exchange of views on what problems after-hours ETF trading could trigger at a time of elevated market volatility.

The discussion was prompted by concerns raised by the chief executive of an asset manager at an emergency meeting on responses to single-stock leveraged products held by the Korea Financial Investment Association on July 29, according to industry officials. Trading volume in that market is thin, and volatility in the underlying shares is already high. For ETFs, there are also worries that gaps between market prices and fair value could widen because intraday indicative net asset value, or iNAV, is not calculated in real time.

"Industry opinion has largely converged on not allowing single-stock leveraged products, but views on regular ETFs have been divided since the Korea Financial Investment Association meeting," a financial investment industry official said. "The exchange's Aug. 10 meeting will include another demand survey and a discussion of difficulties that could arise if ETFs are traded in the after-market session."

Ko Jung-sam, Hankyung.com reporter jsk@hankyung.com