Kim Doo-nam, Vice President of Customer Marketing at Samsung Asset Management, speaks during an interview with Seoul Economic Daily at the Samsung Electronics building in Seocho-gu, Seoul, on the 31st. Samsung Asset Management
“Linking high trading volume directly to suspicions of wash trading reflects a complete misunderstanding of the structure of exchange-traded funds (ETFs) and liquidity providers (LPs).”
Kim Doo-nam, Vice President of Customer Marketing at Samsung Asset Management — who in 2010 introduced Asia’s first inverse and leveraged ETFs — made the remarks in an interview with the Seoul Economic Daily on Wednesday, addressing the recent controversy over alleged “trading volume inflation.” He directly rebutted claims that brokerage LPs had repeatedly engaged in wash-like trades to artificially boost the trading volume of Samsung Asset Management’s single-stock leveraged products tied to Samsung Electronics and SK hynix.
LPs operate separate inventory (book) accounts to supply liquidity, and within those accounts, transactions in which buy orders are placed at prices equal to or higher than the seller’s own ask quote — and matched against the LP’s own inventory — are structurally blocked. “Brokerage LPs are inevitably managed even more sensitively when it comes to the possibility of abnormal trading,” Kim said. “If wash-like trades were ever caught, it could lead to exchange audits and even financial authority investigations, so there is no incentive to take on such a risk.”
Kim also cautioned against over-interpreting the fact that multiple small and mid-sized brokerages appeared simultaneously on the top buy and sell channels on the listing day. “These are not brokerages suddenly mobilized for trading after the single-stock leveraged listing — they are firms that have consistently ranked among the top in LP trading volume for the existing KODEX Leverage ETF as well,” Kim explained. “If they hold inventory of the same scale, there is no functional difference in LP capacity between small-to-mid-sized firms and large firms. What matters more than the size of a brokerage is its inventory holdings and hedging strategy.”
The increase in trading volume is also a natural phenomenon that can appear in the early stages of listing due to market structure, he said. For newly listed ETFs, LPs apply different funding rates and hedging strategies based on the inventory they have secured in advance. As a result, even at the same price, what is a sellable price for one LP can be a buyable price for another. “Executions between LPs can occur in the process of competitively narrowing bid-ask spreads to reduce investor transaction costs, but it is a stretch to interpret this immediately as wash trading,” Kim said. “Such a phenomenon can stand out even more, especially in the early listing stage when supply is large.”
Regarding the “power abuse” controversy over allegations that LP brokerages were asked to provide more seeding (initial supply investment) than competitors, he countered that this was a routine cooperation request typically made during large-scale new listings. “It is true that we asked them to provide tighter quotes, considering that once LP inventory is depleted quickly in early trading, it takes time to secure additional supply and resume quoting, and the price disparity that could occur if buying pressure surges in the meantime,” Kim said. “But there was absolutely no mention of suspending trading relationships or imposing disadvantages, and the relationship between an asset manager and LPs is hardly a one-sided power dynamic.”
On claims that some LPs increased trading volume while absorbing losses, Kim drew a line, saying, “Whether actual profits or losses occurred is difficult to determine immediately, even within the brokerages themselves.” LPs do not manage single ETF trades in isolation, but operate hedging positions including futures on an integrated basis, making it difficult to isolate the trades of a specific product to immediately judge profit or loss, he explained.
A Samsung Asset Management official added, “As the asset manager with the largest market share in Korea’s ETF market, we considered it our duty to provide stable quotes to customers. We feel strong regret that measures taken to prevent incidents and protect investors in the early stages of listing are being distorted and misrepresented.”