Calls grow to delist Samsung, SK hynix leveraged ETFs

Rep. Ahn Cheol-soo of the People Power Party attends a party meeting at the National Assembly in Seoul, June 18. Newsis

Political pressure is mounting to delist single-stock leveraged exchange-traded funds (ETFs) tied to Samsung Electronics and SK hynix following successive risk warnings from financial authorities and the Bank of Korea (BOK), as the high-risk products are being increasingly blamed for recent turbulence in the domestic stock market.

Rep. Ahn Cheol-soo of the main opposition People Power Party (PPP) slammed the rollout of the products as a complete policy failure, calling for aggressive regulatory intervention, including their delisting, to restore normal market operations.

"KOSPI has devolved into a casino," Ahn wrote on Facebook Monday, pointing to the 212 trillion won ($139 billion) traded in the leveraged funds, which he argued has fueled sharp swings in stock prices.

"All 14 single-stock leveraged ETFs tracking the two chipmakers have posted negative returns over the past month, with losses reaching as much as 35.9 percent," he wrote. "To stabilize the market, sweeping corrective measures, including forced delistings, are urgently needed."

Ahn also urged President Lee Jae Myung to hold the administration accountable for the market fallout by immediately dismissing both the chairman of the Financial Services Commission and the governor of the Financial Supervisory Service (FSS).

On May 27, 14 leveraged ETFs and two inverse ETFs tracking Samsung Electronics and SK hynix debuted simultaneously, attracting strong investor interest amid the artificial intelligence investment boom. However, the products have since come under fire as a series of side effects has emerged.

Because the ETFs track the two chipmakers, which together account for more than half of KOSPI's market capitalization, declines in the underlying stocks can magnify investor losses. The resulting hedging and rebalancing trades put additional downward pressure on the shares, further increasing volatility in the broader market. The products have also fallen short of expectations in helping stabilize the weak won.

Financial Supervisory Service (FSS) Gov. Lee Chan-jin speaks during a press conference at the FSS headquarters in Seoul, June 22. Yonhap

Amid growing concerns, financial authorities and the central bank have intensified their warnings.

"Investing with leverage beyond manageable levels not only exposes investors to significant losses but can also seriously undermine household financial health," FSS Gov. Lee Chan-jin said while chairing a meeting on financial consumer protection on Tuesday.

He also expressed regret over approving the products, acknowledging their negative side effects during a June 22 press conference.

"We rushed the process at the time. Perhaps I should have done everything I could to stop their approval," he told reporters.

The BOK has also raised concerns. In a written response submitted to Rep. Park Sung-hoon of the PPP on Sunday, the central bank said single-stock leveraged ETFs could draw excessive investment into a small number of stocks and increase market volatility through daily fund rebalancing.

Still, market participants view a forced delisting as highly unlikely, saying removing all 16 products at once would likely disrupt the market and undermine investor confidence.

There is also little legal basis for such a move. Under Korea Exchange regulations, ETFs can generally be delisted only under specific circumstances, such as when the underlying stock is delisted or the issuer commits serious disclosure violations.

Regulators said they are reviewing alternative measures to address concerns over market volatility.

"We are assessing a range of options but have yet to reach a conclusion," an FSS official said. "Any regulatory changes would need to take broader market implications into account."

According to regulatory sources, authorities are reviewing measures aimed at curbing speculative trading, including tightening trading requirements for the products.

Rep. Han Jeoung-ae, policy chief of the Democratic Party of Korea, also said the party would examine whether the ETFs have increased risks for retail investors before deciding whether additional regulations are needed.