Exchange-Traded Funds Coming

Korea will introduce exchange-traded funds early next year that will be listed on the nation's main stock exchange, Deputy Prime Minister Jin Nyum told local financiers Friday.

An exchange-traded fund tracks a stock index but is traded like a stock. The best known such fund is Standard & Poor's Depositary Receipts, which tracks the S&P 500 index.

The advantage of exchange-traded funds is that they will show the same performance as, for example, the Korea Composite Stock Price Index or the Kosdaq composite index and can be cashed in any time after they are listed on the exchange, Mr. Jin said.

"It is good news for the stock markets," he said, "because investors who seek more stable return rates will snap up the funds, which will add more liquidity to the markets."

Unlike existing index mutual funds, investors in exchange-traded funds can redeem their investments immediately by selling shares of the funds or they can swap their beneficiary certificates for the underlying stocks that constitute the portfolios and sell them on the exchanges.

Existing Korean mutual funds usually have a maturity date, and shareholders meet at the end of the stipulated period to decide whether to continue the investment or not. When shares in existing funds are sold, they are redeemed at the next day's price. The new funds will be more liquid.

The minister said that the government will work with the Korea Investment Trust Companies Association, the Korea Stock Exchange and the Kosdaq Stock Market Inc. to draw up regulations on the funds later this year.

The United States, Germany, Britain, Switzerland, Australia and Hong Kong have already introduced exchange-traded funds, and Japan is moving to follow suit.

Mr. Jin repeated that the government will abolish financial regulations that prevent local financial institutions from being competitive.

by Song Sang-hoon