Crude oil ETNs suspended by the Korea Exchange

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Crude oil ETNs suspended by the Korea Exchange

Korea Exchange is suspending trade in two derivative products tracking West Texas Intermediate (WTI) futures as the price of the instruments diverged too far from their indicative value.

The exchange said Wednesday it will suspend leveraged exchange traded notes (ETNs) from Mirae Asset Daewoo and Shinhan Investment for two days — today and Friday.

Both are linked to the WTI price.

ETNs are debt instruments designed to track underlying assets and traded on public markets much like funds.

Earlier in the day Wednesday, the exchange warned the market if the gap between the market price and the indicative price remains more than 30 percent by the close of trade, it would suspend trading of the two ETNs.

The gap for Mirae Asset’s ETN was 213 percent and for Shinhan’s instrument it was 847 percent by the end of trading on Wednesday.

Investors in Korea have been heavily buying crude-oil-tracking ETNs since last week as the U.S. benchmark oil price continued to plummet on decreasing demand due to the coronavirus outbreak. With the WTI futures price hitting a record low Monday, and going negative for a time, investor interest became ever more intense.

“If the price of WTI futures falls by more than 50 percent, the indicative value could go to zero [for leveraged ETNs] and the investors could lose their entire investment. Please be aware when making investment,” the Korea Exchange said in a release.

Crude futures ETNs issued by Samsung Securities and NH Investment & Securities were previously suspended. The lifting of the suspension is being discussed, the exchange said.

BY JIN EUN-SOO [jin.eunsoo@joongang.co.kr]

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