Controversy Over KOSDAQ Active ETFs and Regulatory Reforms
Concerns regarding unfair trading and information asymmetry surrounding KOSDAQ active ETFs have prompted the Financial Supervisory Service (FSS) to pursue regulatory reforms. The authorities are responding to allegations of illicit trading involving influencers (‘finfluencers’) by considering adjustments to the timing and method of ETF component disclosures, strengthening real-time monitoring and strict crackdowns on illegal activities. Furthermore, the FSS plans to investigate whether asset management insiders engaged in unfair trading with prior knowledge of ETF inclusions, with worries that such practices may encourage copycat trading among retail investors.
Efforts are underway to consider criteria that prevent excessive marketing and fee-cutting competition, while bolstering investigation capabilities through the use of special capital market police. The advance disclosure of ETF component stocks is criticized for directly affecting the prices of specific shares and disrupting market order. Conversely, adopting non-transparent portfolio strategies has been found to cause wider spreads by liquidity providers and reduce investor interest due to lack of transparency, pointing to economic inefficiencies. The unsuccessful introduction of semi-transparent ETF models in the U.S. demonstrates the complexity of finding an optimal balance between transparency and market stability in the ETF sector.
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FSS blocks 'pre-disclosure' of Active ETFs and tightens 'front-running' by Finfluencers - Cookie NewsThe Financial Supervisory Service has formalized improvements regarding the controversy over pre-disclosure of Kosdaq Active ETFs. This is an effort to prevent the possibility of unfair trading using information asymmetry.
Active ETF Pre-disclosure Controversy…FSS Chief: 'Separate Inspection of Unfair Trading' - Seoul Economic DailyThe financial authorities announced that they would inspect whether asset management company officials were involved in unfair trading practices related to the pre-disclosure controversy of the 'KOSDAQ Active Exchange-Traded Fund (ETF)'. On the 26th, Lee Chan-jin, the chief of the Financial Supervisory Service, held a press conference at the headquarters in Yeouido, Seoul, stating, 'If there was intent in the pre-disclosure of the stocks'
[ETF Front-running] Authorities Plan Revisions... Will Proxy Port and PDF Be Hidden? - Yonhap InfomaxThe controversy over the pre-listing disclosure of component stocks in Kosdaq Active Exchange Traded Funds (ETFs) has expanded into allegations of institutional front-running, leading financial authorities to consider revisions to the overall method of disclosing the composition details (PDF). As of the 26th, according to industry sources, the Financial Supervisory Service (FSS) is widely gathering opinions on potential changes regarding the timing, method, and scope of access for ETF portfolio disclosures from major asset management firms. Previously, on the 18th, the Korea Financial Investment Association, a legal body within the financial investment industry, held its first meeting (kick-off) with the FSS and major asset managers to gather industry opinions ahead of amendments to the Enforcement Decree of the Capital Markets Act for the abolition of correlation coefficients.
[ETF Front-running] Is Hiding Stocks the Best Solution? Lessons from the U.S. Semi-Transparent Active ETFs - Yonhap InfomaxAmid the controversy over front-running due to the leak of components of KOSDAQ active exchange-traded funds (ETFs) before listing, discussions are emerging on revising the disclosure method of the asset composition file (PDF). Although the U.S.-style non-transparent and semi-transparent active ETF model, which does not disclose the PDF, is mentioned as an alternative, it failed to settle in the U.S. market. This serves as a lesson that merely hiding the portfolio is not an effective solution to front-running. According to the financial investment industry on the 26th, the financial authorities are reportedly considering the introduction of the U.S.-style proxy basket and delayed PDF disclosure as prevention measures against front-running.