South Korea’s rapidly growing ETF market is intensifying competition among brokerages to become primary liquidity providers, with firms expanding product offerings and staff recruitment, as they navigate increasing risks and regulatory challenges in a booming landscape.
South Korea’s exchange-traded fund market is growing so quickly that the scramble among brokerages to become liquidity providers is intensifying with it. As ETF assets swell, securities firms are adding products, hiring traders and testing whether they can turn market-making into a durable line of business rather than a side role.
According to the Korea Exchange’s KIND disclosure system, Woori Investment & Securities has recently broadened its ETF liquidity provision work by signing a series of contracts with asset managers. Mirae Asset Global Investments has added the firm as liquidity provider on several TIGER products, including TIGER 200IT, TIGER GameTOP10, TIGER Holding Company and TIGER China CSI300. Last month, Woori Investment & Securities also took part as both liquidity provider and authorised participant on 10 WON ETFs from Woori Asset Management.
The push is not limited to established players. KakaoPay Securities, which won approval for investment dealing business last month, is considering entry into sales and trading, including ETF liquidity provision, over the medium to long term. In Korea, ETF liquidity provision does not require a separate licence; instead, brokerages with the right dealing business set up contracts with asset managers and provide quotes in the market.
Existing brokerages are also strengthening their teams. Kiwoom Securities has hired experienced ETF liquidity provision staff this year, setting out duties that include quote management for domestic equity ETFs, hedge trading and oversight of profits, losses and securities lending. Daol Investment & Securities also recruited entry-level and experienced ETF liquidity provision traders last month.
The appeal is clear. As ETF trading grows, so do opportunities for liquidity providers. But the risks grow as well. In 2024, a Shinhan Investment employee handling ETF liquidity provision allegedly made futures trades that fell outside the intended hedge strategy, triggering losses of about won 130 billion. That episode was not a normal hedge loss, but it exposed how failures in internal controls can quickly escalate into a large-scale problem.
Tax treatment is another pressure point. Liquidity providers hedge ETF positions with stock baskets and other trades, and their true economic result depends on net gains after offsetting profits and losses. Yet under the current education tax regime, securities trading losses are not fully netted out, which means the tax burden can rise as trading volumes increase.
The wider market backdrop helps explain why the contest is sharpening. A report in Sedaily said South Korea’s ETF market is nearing won 450 trillion, but the performance grades of brokerage liquidity providers have worsened as trading volume and product counts have surged. In the first quarter, seven of the 26 domestic brokerages assessed received a C grade, the worst showing since the second quarter of 2020. The same report said ETF deviation disclosures jumped to 1,359 in the first quarter from 723 a year earlier, while industry watchers warned that single-stock leveraged ETFs scheduled for launch later this month could add further strain.
Other reports show how fast the market has expanded more broadly. Yonhap said domestic ETF net assets passed won 100 trillion in 2023, while later market data reported by Stock.mk and Ajunews put the figure at won 373 trillion as of May 5, more than three times the level at the end of 2023 and close to the won 400 trillion mark. The market remains dominated by a handful of firms, led by Samsung Asset Management, with competition among mid-sized managers also intensifying.
For one fund industry executive, the message is straightforward: the real test is no longer how many ETFs a brokerage can sign, but whether it can keep supplying liquidity reliably while managing hedge costs, tax burdens and internal controls efficiently.
Disclaimer: This article is intended to inform and educate, not to recommend or endorse any financial product, investment or strategy. Please consider your own financial circumstances and seek professional advice where appropriate before making financial decisions.
