The Korea Exchange's ETF listing review process has been disrupted by the market volatility that followed the launch of single-stock leveraged ETFs, sources said. Concerns are also mounting that a shortage of review staff, combined with a backlog of pending applications, could slow new product launches from the fourth quarter onward.
According to Yonhap, the Korea Exchange late last month surveyed major asset management firms about their planned ETF listings and informed them that "even if a preliminary review application is submitted from August, the schedule may take longer than usual, so please factor this into your listing plans."
While new applications remain technically open, the industry has interpreted the message as an effective request to hold off, given that the exchange must first work through its existing review backlog.
The delays are understood to stem from increased market volatility following the launch of single-stock leveraged ETFs in late May, which prompted a surge in data requests and demands for responses from the National Assembly and financial regulators.
The Samsung Electronics and SK Hynix single-stock leveraged ETFs drew criticism for amplifying retail investor losses and broader market volatility during a sharp selloff in semiconductor stocks.
At last month's National Assembly Financial Affairs Committee session, lawmakers from both the ruling and opposition parties criticized the introduction of single-stock leveraged ETFs and the financial authorities' subsequent response. Financial regulators' heads offered apologies.
The Korea Exchange currently has four staff members handling ETF listing reviews. Some have been reassigned to other teams to manage National Assembly and regulatory inquiries related to single-stock leveraged ETFs. The disruption has been compounded by the summer vacation season and the existing review backlog.
Under normal circumstances, the process from an exchange review to an actual ETF listing takes roughly three to four months. After clearing the exchange review, a fund manager submits a securities registration statement to the Financial Supervisory Service. Once the statement takes effect, the listing date is confirmed and initial setup procedures are completed before the ETF begins trading.
Products that submitted preliminary review applications in the second quarter are therefore likely to launch as scheduled this month and next.
However, products that applied for review this month and had been targeting a fourth-quarter listing may face delays. Some in the industry warn that if the backlog persists, the number of new ETF launches by year-end could fall sharply.
The Korea Exchange pushed back against suggestions it had restricted new ETF review applications or suspended the listing review process altogether.
"We intend to work through the backlogged applications first and then proceed in order," an exchange official said. "We have never told asset managers not to submit new products." The official added that the exchange had simply notified firms that new applications may face some delays given current staffing constraints, describing it as a routine process of coordinating schedules by gauging managers' listing plans and expected volumes.
Within the industry, concern is growing that asset managers who never launched single-stock leveraged ETFs are nonetheless being caught up in listing delays caused by the fallout from products introduced under financial authorities' initiative.
Smaller asset managers, for whom launching new ETFs is directly tied to business growth, face a heavier burden than large firms that already have established product lineups and market share.
kimstar@heraldcorp.com
