Foreign retail investors to gain ETF, ETN access through omnibus accounts

Korea will allow foreign investors to trade exchange-traded funds (ETFs)  and exchange-traded notes (ETNs) through omnibus accounts as part of the government’s efforts to improve overseas investors’ access to the local equity market, the Financial Services Commission (FSC) said on Thursday.

The financial authorities will expand the scope of foreign omnibus accounts from stocks to include both ETFs and ETNs, said FSC Chairman Lee Eog-weon during a press conference in central Seoul on Thursday. “Foreign retail investors have been strongly signaling that they want to buy Korean stocks, but the institutional framework to accommodate them was not fully in place," he added.

Under the omnibus account system, nonresidents can trade Korean equities through overseas brokerages, forgoing the need to open separate accounts with local securities firms — a process that can often be a hurdle for foreign investors because it requires them to verify their identity with a Korean resident registration card and a local phone number.

Hana Securities offers the service through Hong Kong-based Emperor Securities and Japan’s Capital Partners, and Samsung Securities rolled out the system in partnership with Interactive Brokers, one of the world’s largest online brokerages, this month. Other brokerages are racing to introduce similar arrangements.

From April 26 to May 15, the trading volume through foreign omnibus accounts totaled 5.8 trillion won ($3.85 billion), with net purchases amounting to 2.2 trillion won.

“We plan to announce a regulatory change notice shortly,” Lee said. 

The financial authorities also plan to establish specific guidelines for prohibiting duplicate listings in late May or early June.

Duplicate listings are a common practice among Korean companies, in which a parent firm spins off its most profitable division and lists it as a separate public entity. They have drawn scrutiny from the government, as they are seen to erode the shareholder value of the originally listed parent company.

“Rather than setting explicit exceptions, such as allowing duplicate listings in future advanced industries, we are focusing on [implementing] broader procedures and standards, including specifying directors’ fiduciary duty to protect shareholders and establishing criteria for assessing the adequacy of shareholder protection efforts,” Lee explained.

The potential easing of the rule prohibiting traditional financial institutions from holding stakes in crypto-related businesses resurfaced after Hana Bank announced last week that it plans to become the fourth-largest shareholder in Dunamu, the operator of Korea’s largest crypto exchange, Upbit, through a 1 trillion won investment.

“The regulation separating finance and crypto should take into account the changes in the global market, as well as issues such as user protection and financial stability,” Lee said. “We will review the matter comprehensively in relation to the second phase of our virtual asset legislation.”

Meanwhile, the government will begin offering 600 billion won of the National Growth Fund to the public from Friday through June 11. The fund, which comes with various tax incentives, is designed to invest in strategic high-tech industries and related ecosystems to strengthen their competitiveness. The fund is set to reach 150 trillion won by 2030.

BY JIN MIN-JI [[email protected]]