Park Han-sol reports on Korea's financial regulators, along with fintech and insurance. She previously wrote about the art world, from biennales and exhibitions to fairs and auctions, with a focus on Seoul and the figures shaping the scene. Before joining The Korea Times, she spent a year at ABC News' Seoul bureau, contributing to coverage of major Asia-Pacific events.
President orders swift measures on risks of single-stock leveraged ETFs
A mobile screen shows a single-stock leveraged exchange-traded fund tracking the shares of SK hynix, May 27, the day the products debuted in the Korean market. Yonhap
By Park Han-sol
President Lee Jae Myung on Wednesday urged financial authorities to swiftly draw up measures to address risks posed by single-stock leveraged exchange-traded funds (ETFs) tied to Samsung Electronics and SK hynix, as the high-risk products come under mounting criticism for exacerbating volatility in the domestic stock market.
Speaking at a policy briefing at Cheong Wa Dae, Lee singled out the controversial products, asking Korea Exchange Chairman Jeong Eun-bo, “Isn't there quite a stir over these ETFs?”
The president then instructed the Financial Services Commission (FSC) and the Financial Supervisory Service (FSS) to “quickly put together well-crafted follow-up measures” to address the issue.
Leveraged ETFs are designed to magnify the daily gains or losses of an underlying asset, typically a broad market index such as KOSPI or the S&P 500, by two or three times. Single-stock versions take that concept a step further, allowing investors to make amplified bets on the direction of an individual company rather than a diversified benchmark. While the structure can turbocharge returns, it can just as quickly magnify losses.
On May 27, 14 leveraged ETFs and two inverse ETFs tracking Samsung Electronics and SK hynix began trading simultaneously. Because the two chipmakers account for more than half of KOSPI’s market capitalization, sharp swings in their share prices can force ETF providers and other market participants to rebalance their positions, creating additional buying or selling pressure that feeds back into the underlying stocks and amplifies broader market volatility.
These products have expanded rapidly since their debut. Trading in the single-stock ETFs reached 212 trillion won ($142 billion) in June alone.
Responding to the president’s remarks, FSS Gov. Lee Chan-jin said his agency “accepts full responsibility for its role as the market watchdog.”
The governor had already expressed unusually blunt remorse over the products’ launch during a press conference last month. “Their intended benefits turned out to be minimal, while the side effects became far greater than anticipated. Looking back, I feel like I should have thrown myself in front of it if that was what it took to stop the launch,” he said.
The FSS governor also described the products as a case of “the tail wagging the dog,” arguing that a single class of financial instruments had grown large enough to sway the broader stock market rather than simply track it.
The rollout has also drawn criticism for the speed with which the products were approved. Critics have questioned whether the ETFs were rushed to market after receiving strong backing from presidential chief of staff for policy Kim Yong-beom.
In a January interview, Kim argued that investors in markets such as the U.S. and Hong Kong already had access to a broad range of leveraged and single-stock ETFs that remained unavailable in Korea. He said he had raised the issue with the FSC and instructed officials to review the regulations. The products were launched less than five months later.
The Korean president's intervention is expected to accelerate the government’s review of the regulatory framework. As an immediate next step, the country’s top economic policymakers — the Ministry of Finance and Economy, the FSC, the FSS and the Bank of Korea, collectively known as the “F4” — are scheduled to meet Thursday to assess market conditions, examine the ETFs’ impact on trading and consider possible policy responses.