China Merchants Securities Exits Korean ETF Market-Making as Seoul Composite Plunges Over 28% in a Single Month
Miles Bennett
China Merchants Securities quit its market-maker role for the only Korea-linked ETF available to mainland investors on July 21 — just one month after taking the job — as KOSPI's 28%-plus plunge from its all-time high sent cross-border liquidity risk rippling into China's capital markets.
What did China Merchants walk away from, and why after just one month?
China Merchants Securities took over market-making for the Huatai-PineBridge China-Korea Semiconductor ETF on June 17. On July 21, it quit — barely a month on the job.
This is the only ETF in mainland China tracking the Korean market. Its exit leaves the product with no liquidity provider.
This means → investors trying to trade this ETF in the short term may face missing quotes or sharply widened bid-ask spreads.
Was the Korea ETF the only product affected?
On the same day, China Merchants also terminated market-making for five QDII products — funds that let mainland investors access overseas markets — linked to the Nikkei 225 and the Nasdaq 100.
The firm told financial outlet JWView: "This is purely a commercial decision and does not represent our view on market direction."
In plain terms = walking away from six cross-border products in one day while insisting it is not a bearish call tells you the risk-reward math on cross-border market-making has stopped adding up.
What exactly happened in the Korean market?
KOSPI started the year at roughly 4,224 points, then surged to a record 9,385.59 on June 19 — a gain of about 116%.
It then reversed hard, falling to 6,516.27 by July 21 — down more than 28% from the peak.
The sell-off triggered 8 market-wide circuit breakers and 37 "Sidecar" halts — Sidecar is an automatic cooling mechanism that temporarily suspends algorithmic trading during extreme volatility. Hitting it 37 times signals volatility far beyond normal range.
Why couldn't the market-maker absorb this volatility?
Morningstar senior analyst Li Yiming pointed to the combination of time-zone gaps and currency risk, which exposed cross-border market-makers to violent price swings and liquidity constraints simultaneously.
This means → the market-maker had to quote prices for a Korean asset during Chinese trading hours, but overnight risk after the Korean close could not be hedged in real time — magnifying potential losses.
In plain terms = Korea's market could circuit-break multiple times in a single session; by the time China's market-maker adjusted positions, prices had already moved sharply.
What does this mean for Chinese investors?
Korea's extreme volatility has already transmitted into China's capital markets via the QDII channel. China Merchants' exit is the latest break in that transmission chain.
The key question now: will a new market-maker step in, and can the ETF's liquidity recover?
This reflects a broader vulnerability — when an offshore market linked to a cross-border product enters extreme conditions, the domestic liquidity infrastructure may be more fragile than investors assumed.
Content is for reference only, not financial advice.