South Korea’s presidential policy office said the government will look at additional measures for single-stock leveraged exchange-traded funds, but delisting them is not considered realistic at this stage. Kim Yong-beom, head of the presidential office’s policy office, said the market for these products has already grown beyond 10 trillion won and investors are already trading them, making a forced delisting too disruptive for the market itself.
Kim said the products were introduced after sufficient discussion and were intended not only to meet investor demand but also to help draw capital back into the domestic market from overseas markets. He rejected the idea that their introduction should be treated as a policy mistake.
At the same time, he said the products carry structural risks that still need to be addressed. One focus is the management of tracking divergence between ETFs and their underlying assets. Because leveraged ETFs need to maintain target exposure, they may trade in concentration during periods of sharp market moves, which can amplify selling pressure in a short time. Kim said regulators, asset managers and securities firms need to discuss whether portfolio adjustments should be completed within 30 minutes, whether that window should be extended, and whether other derivatives-based methods could be used for risk management, according to KBS.
South Korea’s presidential policy office said single-stock leveraged exchange-traded funds will be subject to additional review, but delisting them is not seen as a practical option.
Kim Yong-beom, head of the presidential office’s policy office, said the government would study follow-up measures for the products, which have recently drawn criticism over their role in stock market volatility. Still, he said delisting is hard to pursue in reality.
According to Kim, the size of the single-stock leveraged ETF market has already exceeded 10 trillion won, and investors are already participating in trading. A forced delisting, he said, would itself deal a major shock to the market, making such a step unrealistic.
Kim also said the products were launched after sufficient discussion. Beyond meeting investment demand, they were also intended to help attract funds flowing to overseas markets back into South Korea’s market. For that reason, he said, they should not be viewed as a policy mistake.
He added that the products carry structural risks and still need to be improved. One area he singled out was the management of the divergence rate between ETF prices and the prices of their underlying assets. Leveraged ETFs, in order to maintain their target multiple, may need to trade heavily during periods of rapid market swings, which can strengthen selling pressure over a short period.
Kim said regulators, asset management firms and securities companies need further discussions on how to reduce the market impact of these products during specific periods. That includes whether rebalancing should be required within 30 minutes, whether the adjustment period could be extended, and whether other derivatives-based risk management tools could be used, according to KBS.
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