The introduction of aftermarket trading for exchange-traded funds (ETFs) by the Korea Exchange has faced opposition from the asset management industry, delaying its planned launch in September. Meanwhile, reactions among asset managers regarding the potential trading on the alternative exchange, NextTrade, are mixed.
According to the financial investment industry on August 20, the Korea Exchange's plan to implement aftermarket ETF trading from September has been postponed. Concerns arose due to restrictions on trading the underlying assets of ETFs after regular market hours, making it difficult to determine fair prices. Additionally, the lack of real-time indicative net asset value (iNAV) could lead to discrepancies between market prices and actual values. There are also worries about liquidity providers (LPs) needing to independently assess fair prices and the increased costs associated with extended operating hours.
Particularly, the recent controversies surrounding single-stock leveraged ETFs have heightened the burden on asset managers. As a result, it is reported that asset managers have collectively decided not to participate in the ETF aftermarket trading on the Korea Exchange. However, industry sources clarify that while the September launch has been delayed, the concept of ETF aftermarket trading is not entirely off the table.
In contrast, views on ETF trading at NextTrade appear to differ. NextTrade is considering the introduction of ETF trading by the end of this year, but it is still in the preparatory stage prior to submitting an approval application, and no specific timeline or participating asset managers have been confirmed.
The differing trading structures being evaluated by the two exchanges are influencing asset managers' decisions. Under the Korea Exchange's policy, asset managers must propose the ETFs to be traded in the aftermarket and secure LPs directly. In contrast, NextTrade is reportedly considering selecting trading target ETFs and securing LPs based on its own criteria. This difference in who leads the trading targets and liquidity provision affects the roles and responsibilities that asset managers must assume.
As a result, it remains uncertain whether the decision of asset managers to abstain from the Korea Exchange will apply to NextTrade as well. One industry insider noted, "NextTrade has a different approach compared to the Korea Exchange. If issues arise in the Korea Exchange, the initial complaints go to the asset managers, but in NextTrade, there is a degree of separation from the asset managers." Conversely, another industry source expressed skepticism, stating, "Like the Korea Exchange, it will be difficult for NextTrade to proceed with aftermarket ETF trading."
NextTrade's preparations are not yet fully defined. A representative from NextTrade stated that they are in the preparatory phase before the approval application, emphasizing, "We are fundamentally pushing forward, but we cannot ignore recent developments." While aiming for a year-end launch, discussions with asset managers regarding participation have not yet begun in earnest. Another asset manager also reported that they have not yet received specific requests for discussions.
* This article has been translated by AI.
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