ETF Surges Despite Stock Price Drop? Beware of 'Discrepancy Rate'

[Anchor]

Joining us on this Wednesday's Friendly Economy is reporter Han Jiyeon. Reporter Han, this is about single-stock leverage ETFs for Samsung Electronics or SK Hynix, right? Are there cases where the returns move differently from the actual stock prices?

[Reporter]

Recently, an unusual and unprecedented trend has emerged in single-stock leverage ETFs tracking SK Hynix.

Even though SK Hynix's stock price fell, the ETF surged.

And even when SK Hynix's stock price went up, the ETF plummeted.

Leveraged ETFs are designed to track double the daily return of a stock. For example, if the stock price rises by 5%, the ETF should rise by about 10%, and if it falls by 5%, the ETF should drop by about 10%.

However, recent movements in SK Hynix-related ETFs have gone completely against this formula.

On Monday (the 8th), while SK Hynix's stock price fell by nearly 8%, the ACE SK Hynix Single-Stock Leverage ETF actually surged by nearly 50%.

Conversely, yesterday, SK Hynix's stock price surged by over 15%, but the ETF, which had skyrocketed the previous day, ended up falling by more than 27%.

This was a process of the price, which had risen excessively above its actual value the previous day, returning to its proper level.

However, from the investors' perspective, they ended up with a completely different result despite correctly predicting the direction of the stock price.

[Anchor]

How was something like this even possible?

[Reporter]

On Monday, the ETF in question was traded at a price much higher than its actual value.

As a flood of large buy orders rushed into a market loophole right before the closing bell, the price skyrocketed.

At the time, the actual value of this ETF was around 16,000 won.

But in the final minutes of trading, it was being traded at 30,000 won.

It was traded at nearly double its actual value.

This gap between the 'actual value' and the 'market price' is called the discrepancy rate.

At that time, the discrepancy rate exceeded 85%.

The problem occurred right before the market closed.

The period from 3:20 PM to 3:30 PM is the single-price auction period, which determines the closing price for the day.

Normally, ETFs have a mechanism to supply liquidity to the market so that the price does not deviate significantly from its actual value.

The entity performing this role is called the LP, or Liquidity Provider.

Usually, securities firms take on this role.

However, during the single-price auction period, LPs are not obligated to submit quotes.

As a result, the volume available in the market can decrease compared to usual. 

It was at this moment that a large buy order from an institutional investor came in.

Since there was not enough supply offered near the actual value at the time, orders were executed sequentially at higher and higher asking prices, causing the price to surge.

This triggered a Volatility Interruption (VI) mechanism, extending the closing price determination period by an additional two minutes.

At the time, some securities firm LPs did not monitor this situation and mechanically withdrew their quotes.

In other words, with the protective shield gone, the large buy orders were executed at higher prices, causing a sudden 50% spike.

[Anchor]

This means someone could distort prices if they wanted to, which suggests that institutional improvements are needed.

[Reporter]

Although it is still under investigation and too early to assign blame,

the Korea Exchange is closely examining whether the LPs' response was appropriate.

The concern is whether LPs mechanically withdrew their orders without properly assessing market conditions during an emergency situation where prices were surging and a VI was triggered.

If the exchange deems the matter serious after its investigation, it could deduct points in regular evaluations or request asset management companies to replace their LPs.

The Financial Supervisory Service is also keeping a close eye on the exchange's investigation results.

However, investors also need to keep one thing in mind following this incident.

While ETFs are basically products designed to track stock prices, their prices can deviate significantly and differently from their actual value when there is insufficient liquidity in the market.

Chasing surging products without checking their actual value, or hastily buying on the dip just because they plummeted, could lead to unexpected outcomes.

When investing in single-stock leveraged ETFs, you must check not only the direction of the stock price but also the discrepancy rate to see how much it differs from its actual value.
※ Please note: This article was translated by AI and may contain errors.