- Initial Listing
- Eligibility of Underlying Assets (Index)
- The indexes which can be used as underlying assets of ETF are selected from the indexes which can comprehensively represent the price level of issues traded on exchanges, foreign exchanges or the markets designated by the Financial Services Commission. A securities index should meet such requirements as the number of issues comprising the index (10 issues or over), the weight* of a single issue in the index (30% or less), the aggregate value of listed stock (KRW 15 billion or over) and daily mean trading amount (KRW 0.1 billion or over) of any of the issues comprising the index, which is within top 85% in terms of the aggregate value of listed stock. [* it means the value calculated by dividing the mean aggregate value of the issue for the latest three months by the sum of the mean aggregate value of all the issues comprising the index for the latest three months.] The Capital Market Act expands the scope of underlying assets to products and currencies traded on the markets opened by an entity that plays substantial functions in exchanges according to foreign laws (e.g., Gold & Precious Metal Exchange in London, over-the-counter bond markets, markets calculating basic exchange rates, etc.). In addition, in the case of Korea Treasury Bond ETF Index, the requirement for the number of issues comprising the index was eased to three issues (two 3Y issues and one 5Y issue) out of the KTB futures basket, enabling small amount investment.
- Size Requirements
- As an ETF is a kind of index fund, it is managed in the way to copy the movement of the index it is following. The listing regulations of KRX require the principal amount of KRW 7 billion or over (for investment company funds, the capital of KRW 7 billion or over) and the number of issued shares of 100,000 or over, which are larger than the size of common funds (for investment company funds, the capital of KRW 5 billion or over and for beneficiary securities funds, the principal amount of KRW 0.3 billion or over). The size requirement of ETFs is stricter than that of other common funds so as to supply minimum liquidity. This means liquidity is more emphasized for ETFs than for other common funds.
- Liquidity Requirements
- A Liquidity Provider (LP) is the entity that forms prices by participating in trading, continuously presenting bid and ask prices so that trading can be made smoothly and have the price converge to NAV. Among APs, LPs take this role. To list an ETF, there should be at least one Authorized Participants (APs) and a liquidity provision contract should be made with at least one of the APs. When the gap between best bid and ask quotations (a.k.a. 'percent quoted spreads') is 2%(if it tracks only korean underlying assets) or over, the LP should submit orders to reduce the gap, and the contract includes such duties of LPs and how to submit orders.
- Asset Components
- As an ETF is a fund created by carrying the issues comprising an index, which issue is carried based on what standard is important. In creating an ETF, the collective investment regulation should reflect the content that the issues representing 95% or over of the index aimed based on the aggregate amount of listed stock in the portfolio deposit file and at least 50% of the number of issues comprising the index are included in the asset. According to the Capital Market Act, it is allowed to form an asset portfolio that aims to be linked with the change in the price of underlying assets or the index (the ratio of the issues linked with the change in prices or index should be at least 95%) other than securities issues. In the case that it is linked with changes in the index not traded on the exchange or that the assets equivalent to on-board or off-board derivatives are managed, the creation ․ additional creation of ETFs or establishment issue of new shares is permitted not by asset payment but by payment in cash.
- Index Use Contract
- Lastly, as an ETF tracks an index, it is necessary to sign a contract with the authority that possesses the legal rights for the index so that the information on it, which are underlying assets, can be provided to investors in real time to be utilized.
< Requirements for New Listing > Classification Requirements Size Capital (principal amount) KRW 7 billion or higher
No. of issued shares (no. of beneficiary security accounts) 100,000 shares or more
Liquidity One AP or more
LP contract with at least one AP
Index Component Issues comprising the index: 10 issues or more
The ratio of a single issue : 30% or less
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 the issue should be at least KRW 15 billion and its daily mean trading value should be at least KRW 0.1 billion.
Asset Component The issues representing 95% or over of the index based on the aggregate amount of listed stock in PDF and at least 50% of the number of issues comprising the index should be included in the asset. Investment Info. Sign a contract for using indexes