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Daily trading in ETN market surges in April

(Yonhap)
(Yonhap)

Profit-seeking retail investors flocked to South Korea’s exchange-traded notes market to invest in the benchmark West Texas Intermediate, triggering a record trading volume of risky derivative proucts, data showed Sunday.

According to the local bourse operator Korea Exchange, the average daily trading amounts in ETN market in April reached 412.3 billion won ($336.6 million), which was nearly 20 times higher from December last year and also the largest figure since the section was launched in November 2014.

The figure, which previously stood at 35.8 billion won in February, skyrocketed to 124.3 billion won in March as the local stock indexes plunged amid the escalating coronavirus pandemic.

Market watchers attributed the explosive demand to the WTI crude oil futures-linked ETNs to plunging prices, as the US oil prices nose-dived to close at negative $37.63 per barrel on April 20.

Of the 895 billion won traded on April 6, 14 WTI crude oil futures ETNs accounted for 855.1 billion won or 96 percent, data showed.

Due to the investment binge, the leveraged ETNs -- which were designed to pay investors twice the price’s daily fluctuation -- once resulted an excessive disparate ratio of 1000 percent, 10 times more than its value in the same month.

To prevent investors’ possible losses of their investments, the Financial Supervisory Service issued warnings in late April and the KRX also suspended trading for local ETNs with an excessive disparate ratio of over 30 percent.

But the disparate ratio soared to as high as 449 percent in last month, far outpacing the previous month’s range between 35.6 percent and 95.4 percent.

Some market experts worried over further possible plunge in exchange traded products’ prices.

“Since ETPs are determined by net asset value, those who purchased overvalued products will likely see losses,” said Choi Ji-hoo, an analyst at KB Securities.

By Jie Ye-eun (yeeun@heraldcorp.com)
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