Asset Managers Reject ETF After-Hours Market Plan

The planned introduction of an after-hours market for exchange-traded funds (ETFs) has been postponed after the asset management industry broadly refused to participate. The Korea Exchange, which had been pushing for the plan, encountered resistance from asset managers, the suppliers of the products. At a working-level meeting in August, all attending asset managers agreed not to list ETFs on the after-hours market.

Major asset management firms such as KB Asset Management, Korea Investment Management, Samsung Asset Management, and Mirae Asset Global Investments opposed the launch due to concerns over price calculation uncertainty and risk management burden. Real-time indicative net asset value (iNAV) is not provided after regular market hours, raising the possibility of widening gaps between market prices and actual value.

The overheating in speculation surrounding leveraged ETFs has also become a significant burden for authorities and the industry. In June, the KOSPI 200 Volatility Index surged to 97.99, comparable to levels seen during the financial crisis, raising concerns about potential speculative demand if extended trading hours occurred. Securities firms serving as liquidity providers also cited infrastructure limitations and risk of losses, requiring considerable cost and time to upgrade order systems for after-hours trading.

Concerns about sharp price swings with minimal trading volumes have also been raised. The decision not to participate is expected to disrupt both the Korea Exchange's plan and the plans of Nextrade, South Korea's first licensed alternative trading system, which had planned to launch ETF trading in the after-hours market in December.

With fund outflows already confirmed this month, the financial authorities plan to focus on investor protection and market stability.