South Korean President Lee Jae-myung said at a cabinet meeting on Tuesday that single-stock leveraged exchange-traded funds have drawn broad criticism for excessively amplifying market volatility, and ordered relevant authorities to quickly and fully improve the regulatory framework.
Lee was responding to market controversy surrounding single-stock leveraged ETFs tied to Samsung Electronics and SK Hynix. He said that while regulators have already taken some measures, investors believe the products have worsened market swings and declines, exposing shortcomings in policy effectiveness.
Lee calls for follow-up measures
Lee said financial regulators should move quickly to draft and refine supporting measures, and study additional steps if needed. He added that the government should keep watching the market impact and introduce further measures when necessary.
Financial Services Commission defends policy goal
South Korea’s Financial Services Commission said the launch of single-stock leveraged ETFs was intended to curb capital outflows linked to overseas equity investment and bring investors under domestic oversight. The commission said overseas markets already offer 2x to 3x leveraged products, and argued that the move could help keep funds inside South Korea’s market.
The Financial Services Commission also said the size of overseas leveraged products has already declined. It added that South Korean retail investors’ net overseas stock investment fell from about $40 billion for all of last year to $2.8 billion in the first half of this year, which it said played a role in stabilizing the exchange rate.
Market criticism remains focused on volatility
Even so, market participants have continued to question whether single-stock leveraged ETFs amplified recent turbulence during sharp swings in semiconductor shares. The controversy has centered on products tied to Samsung Electronics and SK Hynix.
Lee said the government needs to keep tracking the market impact and be ready to introduce extra measures if necessary.