- Legal Requirements
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- Basic Requirements
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(1) Investment Goals and Strategies (Article 234, Clause 1, Item 1 of the Capital Market Act)
- 1. It should be managed in link with the change of the index that comprehensively represents the price level of multiple issues according to the price or kind of the underlying assets. In this case, the price or index of the underlying assets should meet the requirements set by the Presidential Decree.
(2) Primary Markets : Attributes as a collective investment vehicle (Article 234, Clause 1, Item 2 of the Capital Market Act)
- 2. Repurchase of beneficiary certificates or the shares of institutional investors should be permitted.
(3) Secondary Markets : Attributes as listed securities (Article 234, Clause 1, Item 3 of the Capital Market Act)
- 3. Beneficiary certificates or the shares of institutional investors should be listed on the stock market within 30 days of the creation of the relevant investment trust or the establishment of the institutional investor.
- Underlying Assets - Investment Vehicles
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While the Indirect Investment Asset Management Business Act, the previous governing law for ETFs, confined the investment vehicles of ETFs to securities such as stock or bond, they were expanded to 'underlying assets' with the introduction of the Capital Market Act.
Requirements for the Price or Index of Underlying Assets
- 1. The index should be able to comprehensively represent the prices of issues traded on exchanges, foreign exchanges or the markets authorized by Financial Services Commission.
- 2. The price or index of Item 1 should be announced properly to investors through the market of the same issue.
- 3. The requirements notified by Financial Services Commission regarding the prices of underlying assets, the issues comprising the index, the ratio of such issues and the management method to link to the changes of the prices and index should be met.
Requirements for the Indexes Tracked by ETFs (1) - In the Case of Securities Indexes
- 1. The index should consist of at least ten issues.
- 2. Any of the issues comprising the index should not represent more than 30% weight of the index.
- 3. For any of the issues comprising the index, which are within top 85% in terms of the aggregate value of listed stock, the aggregate value of listed stock (the mean aggregate value in the latest three months) of the issue should be at least KRW 15 billion and its trading amount (the mean trading amount in the latest three months) should be at least KRW 0.1 billion.
Requirements for the Indexes Tracked by ETFs (2) - Other than Securities Indexes
- 1. The price should be formed fairly on exchanges (including foreign exchanges).
- 2. Although the price is formed on an exchange, unless the price information is provided on a daily basis or the price-forming process is transparent, an ETF cannot track the price. Therefore, the reliable price information should be announced on a daily basis.
- 3. The prices or indexes should be calculated by authorized institutes.
ETF Management Method
- 1. It should be managed by linking the changes in the NAV of an ETF to a certain magnification (including negative magnifications) of the changes of prices and indexes.
- 2. The changes in the NAV of an ETF should be aimed to exceed the changes in the prices and indexes.