Korea ETF discrepancies raise liberalisation fears

Author: Brian Yap | Published: 15 Oct 2015

Korea’s Financial Services Commission (FSC) must tackle offshore exchange-traded fund (ETF) manipulation, as trading irregularities grow, according to counsel in the country.

For the first time since launching its exchange-traded-fund market in 2002, the regulator has stepped into the fray, with an initiative to offer tax incentives to ETFs that track foreign stock market indices and allow the National Pension Service to buy domestic ETFs.

But the increasing prevalence of offshore ETF irregularities, notably China-indexed ETFs, resulting in inflated prices, has led to widening discrepancies between the market price of offshore ETFs and their net asset value.

"An abnormal surge of 14% in the price of Chinese leveraged ETFs, which has far exceeded Korea’s statutory limit of 6% for offshore ETFs has raised the red flag for the authorities," said Jae Ho Baek, attorney at Kim...