The Korea Financial Investment Association is pushing for the direct listing of public funds, but the number of public funds that will be listed directly is expected to be fewer than the originally planned 30, with only about 10. Public funds with underlying assets of "overseas stocks" will be excluded from the direct listing targets. The increased volatility in the won-dollar (won-dollar) exchange rate since the inauguration of U.S. President Donald Trump has led to the decision to initially exclude overseas stock public funds from the direct listing.
According to the financial investment industry on the 14th, the Korea Financial Investment Association and the asset management industry initially planned direct listings for about 30 public funds. Most of these funds had underlying assets of bonds or overseas stocks. However, discussions have recently been held to exclude overseas stock funds from the direct listing list. Excluding overseas stock funds will significantly reduce the number of initially listed public funds to about 10.
The reason for the delay in the direct listing of overseas stock funds is the fluctuation of the won-dollar exchange rate since the launch of Trump’s second term. President Trump has unleashed reciprocal tariffs globally after taking office. With the ongoing global tariff war, the won-dollar exchange rate has skyrocketed, and there are concerns in the market that the exchange rate could surpass 1,500 won.
A representative from the financial investment industry noted regarding the direct listing of public funds, "Considering the recent atmosphere in the foreign exchange market, there could be issues with currency hedges, so we are currently reviewing the exclusion of overseas stock funds for the time being," adding, "As this is a system being introduced for the first time, we are focusing on stability."
The Korea Financial Investment Association chairman Seo Yoo-seok, who took office in 2023, has been working to invigorate the stagnant public fund market by promoting direct listings of public funds as a key business. The aim is to enable public funds to be traded in real time on the Korea Exchange, similar to exchange-traded funds (ETFs).
Until now, public funds have been seen as cumbersome to trade compared to ETFs. Thus, the essence of the direct listing system for public funds is to create a listing class (X class) for public funds with assets of 50 billion won or more, allowing for real-time trading similar to ETFs. X class products are expected to be released in the second quarter of this year (April to June).
However, even if the number of public funds being directly listed decreases, concerns about a lack of liquidity providers (LPs) are expected to continue. Currently, the securities firms that have committed to becoming LPs are Mirae Asset Securities, Korea Investment & Securities, Meritz Securities, and SK Securities. LPs play a role in providing quotes for public funds that are listed directly.
The issue is that securities firms are being passive about becoming LPs. Directly listed public funds must meet the total asset requirement of 50 billion won and also fulfill a minimum asset requirement of 7 billion won for the X class. There will be no issues if existing public fund investors switch to the X class and invest over 7 billion won, but if not, the LPs will have to cover the shortfall.
If 15 public funds are directly listed but there is no switch by existing investors to the X class, this means that the four LPs will need to collectively set up 105 billion won. Additionally, to participate as an LP, one must also pass the financial regulatory sandbox (innovative financial services) review, making it unlikely to increase the number of LPs in the short term.
Currently, management firms are persuading existing investors to switch to the X class to reduce the burden of setting up for LPs. It is reported that they are emphasizing that the sales commission fees for X class are lower than those for existing A and C classes. A representative from a small asset management firm said, "We are putting effort into persuading both LPs and investors."