Disclosure Controversy in KOSDAQ Active ETFs and Regulatory Reform Movement
A recent controversy has emerged in the Korean market after it was revealed that some institutional investors received advance information on the constituent stocks of a soon-to-be-listed KOSDAQ active ETF. This information asymmetry creates an uneven playing field between individual and institutional investors, with concerns rising over potential front-running by those with early access. Sharp price fluctuations in certain stocks linked to the ETF have already been observed, prompting renewed calls from industry participants to enhance transparency in the information disclosure process. Experts stress that improvement in disclosure practices is critical to maintaining fair and trustworthy market conditions for all investors.
Meanwhile, the Korea Financial Investment Association recently held an informal meeting with major asset management firms to discuss the potential repeal of correlation coefficient regulations on active ETFs. The industry argues that mandatory correlation requirements can stifle strategic flexibility and innovation in ETF management. In line with these concerns, the government has announced intentions to ease index-tracking requirements and move toward the introduction of 'fully active ETFs,' which allow for greater operational autonomy. These regulatory reforms could mark a significant turning point for innovation and competitiveness in Korea’s ETF market.
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Suspicion of Front-Running in KOSDAQ Active ETFs Spreads...Korea Securities Depository Pointed Out as Exposure Channel - Yonhap InfomaxFollowing the controversy over the disclosure of components before the listing of KOSDAQ Active Exchange Traded Funds (ETFs), suspicion of front-running is also spreading. The Korea Securities Depository's system for setting up new ETFs is being pointed out as a channel that exposes component stocks in advance, and there is criticism that this could be a channel for front-running due to information asymmetry, as only institutional investors, not individual investors, have access. According to the financial investment industry on the 19th, asset managers apply for the initial setup of an ETF through the Korea Securities Depository's eSAFE system three business days before listing a new ETF. Typically, liquidity providers (LPs) set up the ETF in advance.