South Korea's Financial Supervisory Service (FSS) Takes Action

In a significant move, South Korea's Financial Supervisory Service (FSS) has called upon major domestic asset managers to provide detailed data on the structure and trading of exchange-traded funds (ETFs). This request targets industry giants such as Samsung, Mirae Asset, KB, and others, aiming to scrutinize ETF operations thoroughly.

Focus Areas of the Investigation

The FSS's inquiry encompasses several critical aspects of ETF operations, including creation and redemption processes, swap structures involving OTC derivatives, and securities lending transactions. This comes after a series of market incidents, including calculation errors in ETF iNAVs, which have raised concerns about investor protection and market integrity.

Regulatory Concerns and Industry Response

The regulator is particularly interested in assessing the appropriateness of collateral used in synthetic ETF swaps and the credit risk associated with these structures. Additionally, the FSS is examining creation practices between asset managers and liquidity providers, amid allegations of undue pressure to inflate ETF shares.

Industry insiders view this extensive data request as a clear signal of the FSS's intent to address not only fee competition but also broader operational and disclosure practices within the ETF market.