Concentrated Trading at One Price After Accepting Bids for a Set Time
Maintained Until Discrepancy Rate Normalizes... Trading Suspension Period Extended
Discrepancy Rate Surges to 95% Despite Authorities' Warnings... Additional Measures to Prevent Investor Losses
[Asia Economy Reporter Minwoo Lee] Exchange-traded notes (ETNs) related to crude oil, whose prices have risen excessively beyond the actual oil price due to investors jumping in expecting a rebound in oil prices, will be traded under a single-price auction system for the time being. This is the second measure taken within two days after the Korea Exchange (KRX) warned of a possible trading suspension due to speculative concerns.
On the 9th, the Korea Exchange announced that due to a surge in excessive speculative demand causing the premium rate (market price relative to indicative value) to widen beyond a certain level for West Texas Intermediate (WTI) related ETNs, the trading method will be switched from continuous trading to single-price auction starting from the 13th. Under the single-price auction system, bids and offers are collected over a set period and trades are executed at a single price (consolidated price). This policy will be maintained until the premium rate is judged to have normalized.
Measures to extend the trading suspension period will also be implemented. If the premium rate remains unstable on the day trading resumes after a one-day suspension due to the widening premium rate, the exchange will extend the suspension period until it judges that normalization of the premium rate is possible. Previously, on the 7th, the Korea Exchange announced that if the premium rate based on the closing price of WTI crude oil futures ETNs exceeds 30% for five consecutive trading days starting from the 8th, trading will be suspended for one day. This was to prevent market overheating as demand for oil-linked ETNs increased and the premium rate soared to abnormal levels.
In fact, the premium rates of crude oil ETN products are skyrocketing. The premium rate of Samsung Securities’ 'Samsung WTI Leverage Futures ETN', which has the highest trading volume, surged to 95.4% during trading on the 8th. Other products also saw soaring premium rates: Shinhan Financial Investment’s 'Shinhan Leverage WTI Crude Oil Futures ETN(H)' at 75.9%, and NH Investment & Securities’ 'QV Leverage WTI Crude Oil Futures ETN(H)' at 73.4%. Typically, securities firms acting as liquidity providers (LPs) submit sell or buy quotes or list additional quantities to keep the premium rate below 6%. However, due to investor enthusiasm fueled by expectations of an oil price rebound, both prices and premium rates surged together.
When the premium rate widens, even if the actual oil price rises, the ETN price may not increase, causing investors to incur losses. Accordingly, the Financial Supervisory Service also issued the highest-level consumer alert, 'Risk', for the 'Leverage WTI Crude Oil Futures ETN' on the same day. This is the first time such a risk alert has been issued since the system was introduced in June 2012.
Meanwhile, the exchange will also strengthen monitoring against unfair trading practices. The exchange stated, "We plan to enhance market surveillance on WTI crude oil futures-related ETNs to detect any unfair order practices through certain accounts amid liquidity shortages," adding, "We will require all member firms to announce the implementation of stabilization measures to curb speculative demand and urge investors to exercise caution."
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