Samsung Electronics and SK hynix 2x Leveraged ETF: Smaller Asset Managers Left Out

Smaller asset managers have been excluded from the market for single-stock leveraged exchange-traded funds (ETFs) set to debut next month. The move appears to reflect a focus on stability, as firms with no leveraged management experience had signaled plans to launch such products. As a result, concerns are mounting that the dominance of large asset managers will become entrenched, while some of the excluded firms are showing signs of backlash.
According to the financial investment industry on the 29th, KRX received listing plans for single-stock leveraged ETFs from asset managers and found that eight firms — Samsung Asset Management, Mirae Asset Global Investments, Korea Investment Management, KB Asset Management, Shinhan Asset Management, Hanwha Asset Management, Kiwoom Asset Management, and Hana Asset Management — plan to launch a total of 16 products simultaneously on the 22nd of next month. Most are preparing two leveraged ETFs each, based on Samsung Electronics and SK Hynix.
Smaller asset managers, however, were left off the list. Some firms had asked KRX during preliminary consultations whether they could launch the products, but were told that, under the Enforcement Rules of the KOSPI Market Listing Regulation, managers without at least one year of experience operating derivative-type funds such as leveraged products and double inverse leveraged ETFs would not qualify to launch single-stock leveraged products. In effect, most smaller firms were unable even to apply. Until now, smaller asset managers have mainly expanded their product lines with active and sector-themed ETFs, so their experience with derivative-type ETFs has been limited. Some firms that had been preparing launches are said to have scrapped their plans entirely.
Smaller firms that lost the chance to participate are voicing concerns that the dominance of large managers will deepen. Even mid-sized managers, excluding the two industry heavyweights Samsung and Mirae Asset, believe that if product structures are also similar while the underlying assets are limited to just two stocks, capital will flow even more heavily toward the largest firms.
One asset management industry official said, "It is as if smaller and mid-sized managers are being told to focus on their existing products," adding, "If similar products are crowded into the market at the same time, the result will ultimately benefit only a few large firms." Another head of a division at a different asset manager said, "Since major managers are bringing out these products, we cannot afford not to launch ours."
A KRX official explained, "Because the rules grant eligibility to launch single-stock leveraged ETFs only to managers with experience operating derivative-type ETFs, some firms appear to have been told they could not proceed." The official added, "In the case of single-stock covered call ETFs, there are no separate launch restrictions."
Originally, the financial authorities and KRX had said they would allow the launch of single-stock covered call products, along with single-stock leveraged products, starting in May. However, the launch of single-stock covered call ETFs now appears likely to be delayed. In a recent survey of asset managers, KRX found that none wanted to launch a single-stock covered call product in May. One industry source said, "The development of the Single-Stock Option Index needed for a single-stock covered call launch has not yet been completed, so we have no choice but to be cautious in drawing up product launch plans."
nodelay@fnnews.com Park Ji-yeon Reporter