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Market Cap Limits Applied to ETFs Forecast to be Adjusted in April
Easing Regulations on ETFs
Market Cap Limits Applied to ETFs Forecast to be Adjusted in April
  • By Yoon Young-sil
  • February 14, 2020, 13:41
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The Financial Supervisory Service is planning to revise financial investment regulations so that an exchange traded fund (ETF) based on an index such as KOSPI, KOSPI200, KOSDAQ150, KRX300 and MSCI Korea can include an investment item in proportion to the ratio of the item’s market cap to the total market cap of the index. The current ceiling of the ratio is 30 percent and opinions are scheduled to be collected until March 22 before implementation scheduled for the second quarter of this year.

In the South Korean ETF market, which opened in 2002, the maximum ratio of a single item in an ETF has been limited to 30 percent so that any excessive influence on the market can be prevented. Meanwhile, Samsung Electronics’ proportion in the KOSPI200 index topped 30 percent in the fourth quarter of 2019 and ETF managers had to include futures instead of stocks to deal with the difference. The proportion reached 32.91 percent on Feb. 12.

In other words, ETFs based on that index can additionally purchase Samsung Electronics stocks by approximately 3 percent. According to experts, the additional purchase is likely to occur once the regulations are revised, and yet the impact of the purchase is likely to be rather limited as the purchase will be an exchange between the stocks and futures.