Growing Divide Between 'Penny' and 'Emperor' ETFs as Regulatory Reform Stalls

ETFs priced below 1,000 won rise from 4 to 7 in a year

Number of ETFs priced above 100,000 won also climbs

Concerns over investor access and price formation

Industry: "ETF splits and consolidations should be allowed"

This year, as the stock market repeatedly surged and plunged, the number of listed exchange-traded funds (ETFs) priced below 1,000 won per unit, known as “penny” ETFs, and ETFs priced above 100,000 won, dubbed “emperor” ETFs, rose at the same time. Industry players are calling for regulatory changes to allow ETF units to be split or consolidated, but amendments to the law have made little progress.

According to the Korea Exchange on the 12th, as of the previous day, there were 7 ETFs priced below 1,000 won. All were inverse or leveraged products, including KODEX 200 Futures Inverse 2X, the lowest-priced at 108 won, and TIGER 2nd Battery TOP10 Leverage, the highest-priced of the group at 881 won. The number of these penny ETFs rose sharply this year, from 4 a year earlier.

Meanwhile, the number of ETFs priced above 100,000 won per unit rose from 67 a year earlier to 80. Even excluding CD rate products listed at 1 million won and bond-type products listed at 100,000 won, the group included TIGER US Nasdaq 100 (165,925 won), TIGER 200 IT Leverage (164,995 won), and KIWOOM 200 TR (111,125 won). In June, when the domestic market was on the rise, TIGER 200 IT Leverage surged to 1 million won, while TIGER 200 IT climbed as high as 211,340 won.

When ETF prices fall to extremely low levels, the risks to investors increase. This is because the lower the ETF price, the larger the proportion of the minimum tick size of 1 won in the overall price. For example, a 100-won ETF moves 1% in price with a change of just 1 won, magnifying the impact of the tick size and reducing the precision of market price formation. As a result, the gap between bid and ask prices becomes relatively wider, potentially leading to temporary increases in tracking discrepancies or unfavorable execution prices.

Problems can also arise when ETF prices rise sharply, such as exceeding 100,000 won. An official in the financial investment industry explained, “When ETF prices rise above 100,000 won, they may become less accessible to small investors. In particular, investors who make regular contributions of a set amount may find it harder to adjust their purchase amounts precisely, reducing the convenience of trading.”

For this reason, industry players are calling for domestically listed ETFs to be allowed to split or consolidate their units. Under the current Commercial Act, stock splits and consolidations are limited to “shares of a company,” excluding ETFs, which are classified as collective investment securities (funds). By contrast, global markets such as the United States, Japan, the United Kingdom, and Australia allow leveraged ETF products and others to be consolidated or split. An industry official said, “To address the problem of ETF prices becoming excessively high or low, it is necessary to establish a legal basis for splitting high-priced ETFs and consolidating low-priced ones.”

Amendments to the relevant legislation were introduced in the National Assembly last year and again this year, but discussions have yet to begin in the relevant standing committee. Han Min-soo of the Democratic Party of Korea introduced an amendment to the Capital Markets Act containing the proposed changes last month. Earlier, fellow party member Kim Hyun-jung introduced an amendment to the same act in February last year. In a review report on the bill, Jeong Myeong-ho, chief expert adviser to the National Assembly’s Political Affairs Committee, wrote, “The legislative intent appears valid, as the measure could strengthen investor protection, improve the convenience of investor transactions, and bring domestic regulations into closer alignment with global standards.”

This content was produced with the assistance of AI translation services.