The Korea Exchange is closely competing with bourses in major countries in the “exchange-traded fund” market.

According to the nation’s main bourse operator, also called the KRX, Seoul ranked 10th in the world’s ETF market last year as the net asset value of the funds hovered around 14 trillion won ($12.8 billion).

An ETF, or exchange-traded fund, refers to an investment fund traded on stock exchanges and represents a basket of stocks that reflect an index. It provides small and institutional investors with risk-hedging tools.

KRX executives said Thursday that the operator has the goal of “fostering the ETF market as the world’s seventh largest” within seven years.

“Compared with 2002, when ETFs were launched in the local market, their net asset value grew about 40-fold,” KRX data showed.

The daily trading volume of ETFs reached 550 billion won in the fourth quarter of 2012, growing 17-fold from 33 billion won 10 years before. The number of listed ETFs also jumped to 129 from four.

Small (or retail) investors took up around 44 percent of the trading volume, while institutions took up 30 percent last year.

The total number of ETF accounts has also reached nearly 400,000, compared with 10,000 in 2002, with individual investors holding 89 percent of the total.

Over the past few years, Japanese investors expressed their keen interest in bond investment in Korea through the ETFs.

In 2011, the Tokyo Stock Exchange offered the idea to list Korea’s bond ETFs in the Japan’s stock market.

The suggestion came after the KRX and local ETF managing companies held an investor relations session in Tokyo.

A KRX spokesman said that investors attending the event were very interested in Korea’s ETFs and especially the Tokyo Stock Exchange which showed an interest in cross-listing treasury bonds and other ETF products both in Korea and Japan.

As a development, the KRX has signed a preliminary pact with the TSE to introduce the cross-trading system of listed stocks aimed at speeding up trading time and lowering costs for both Korean and Japanese investors.

Under the deal, the KRX and the TSE started providing stock market data. The exchanges, which share the same opening and closing hours, are now working on a joint listing of the exchange-traded fund and derivative products.

KRX chairman Kim Bong-soo has reiterated that the main bourse operator will accelerate its expansion into overseas markets, providing stock market solutions to strategic partners in Asia and elsewhere.

“Korea Exchange has formed solid partnerships with Southeast Asian countries by offering its market solutions, and is already making progress in central Asia as well,” Kim said.

The chairman also said that the exchange is considering making inroads into East Europe, Africa and Latin America in a bid to solidify its position as a key exporter of advanced financial solutions.

By Kim Yon-se (kys@heraldcorp.com)