Korea Exchange is launching after-market ETF trading on September 14, marking South Korea's first extension of ETF trading hours beyond regular sessions. Asset managers submitted participation requests last week following the exchange's second demand survey, with firms applying to list between 10 and 50 ETF products each. The exchange plans to finalize the list of tradable ETFs by the end of July or early August. The initiative aims to expand trading accessibility by extending hours from 4 PM to 8 PM, though participation is limited to ETFs with secured liquidity providers. South Korea currently has 1,144 listed ETFs from 27 asset managers with a combined market capitalization of 482 trillion won.
Asset Managers Submit 10 to 50 ETF Products for After-Market Trading
Asset managers submitted between 10 and 50 ETF products each during the recent demand survey conducted last week. Firms focused applications on flagship products with large market capitalizations and high average daily trading volumes. The submitted ETFs represent approximately 60% of the total market capitalization, equivalent to around 290 trillion won. This corresponds to roughly the top 60 ETFs by market cap, with each having a market capitalization of at least 1.5 trillion won. The top six asset managers by net assets exceeding 10 trillion won control over 92% of the market.
An asset manager representative stated that firms must secure liquidity providers to operate in the after-market, requiring attention to operational details. The representative noted that strengthened investor protection measures make it more difficult to aggressively apply for numerous products compared to previous periods.
Korea Exchange Sets Final Selection Timeline for Late July or Early August
Korea Exchange will confirm final participation intentions by the end of July or early August to determine the final list of tradable ETF products. This follows the second demand survey conducted in March. The exchange will accept additional product applications on a quarterly basis after the initial launch. Trading will be permitted only for ETFs where liquidity providers participate to ensure appropriate pricing after regular trading hours.
The exchange will apply the same bid-ask spread maintenance ratio requirements for liquidity providers as in regular trading sessions. Trading and settlement fees will be waived for transactions intended to supply liquidity.
Liquidity Provider Requirements Shape Market Structure
Liquidity providers face operational constraints as ETF creation and redemption windows remain at 4 PM to 4:30 PM, unchanged from current practice. This means liquidity providers cannot perform real-time creation and redemption during after-market trading hours from 4 PM to 8 PM. Providers must pre-create sufficient ETF units, requiring capital costs and sophisticated response capabilities based on market conditions.
The exchange does not officially publish intraday net asset value (iNAV) during after-market hours, requiring liquidity providers to calculate values independently. An asset manager representative stated that firms are considering a conservative initial approach, with plans to add trading products in subsequent quarters. The representative noted that expanded tracking errors ultimately affect investor confidence in asset managers, while liquidity providers naturally prefer products with active trading.
For smaller asset management firms, operating dedicated staff during after-market hours presents resource challenges, leading to selective participation focused on flagship products. A liquidity provider representative stated that after-market establishment has been discussed for a long time, and while institutional preparations remain substantial, the market should expand gradually starting with prepared participants.
FAQ
What ETF products will trade in Korea's after-market when it launches on September 14?
Asset managers submitted between 10 and 50 ETF products each for after-market trading, focusing on flagship products with large market capitalizations and high trading volumes. The submitted ETFs represent approximately 290 trillion won in market capitalization, corresponding to roughly the top 60 ETFs with individual market caps of at least 1.5 trillion won. Korea Exchange will finalize the tradable product list by the end of July or early August.
Why must liquidity providers pre-create ETF units for after-market trading?
ETF creation and redemption windows remain at 4 PM to 4:30 PM, unchanged from regular trading hours. Since after-market trading runs from 4 PM to 8 PM, liquidity providers cannot perform real-time creation and redemption during these extended hours. This requires providers to pre-create sufficient ETF units using capital and develop sophisticated market response capabilities.
