Financial Regulator Chief Calls Samsung's Leverage ETF a 'Gambling Den'

Lee Chan-jin, the head of South Korea's Financial Supervisory Service, has likened single-stock leverage ETFs to a "gambling den" and expressed regret over their introduction. He also criticized the recent failure of Mirae Asset Securities to allocate shares in SpaceX and raised concerns about journalists engaging in front-running trades.

During a press conference on June 22, Lee voiced serious concerns about the increasing volatility in capital markets and the concentration of leverage products. He specifically targeted the Samsung Electronics and SK Hynix single-stock leverage ETF, which has surpassed 14 trillion won in size since its launch in May.

"This leverage ETF is showing an enormous turnover rate," Lee said. "At one point, it dropped as much as 200%, but has since eased to around 130%. This means investors are paying between 5 trillion and over 10 trillion won in trading fees."

He added, "I feel a sense of pain. What hurts is that this is only enriching the securities firms. It worries me that it resembles a gambling den where those who take the biggest risks end up making the most money."

Approximately 92% of investors in this product are individual investors. Lee noted, "Due to the leverage structure, we have seen actual declines of up to 37% during continuous downturns. Despite raising consumer alerts, the situation has not improved."

He remarked, "Unless one develops an automated trading program using APIs, it seems one would have to be glued to this all day. I have been questioning whether this product is appropriate for the average person's life. I personally reflect on whether we should have blocked its testing when the securities registration was submitted."

Lee emphasized that many investors are from the middle class and lower-income groups, stating that sudden market fluctuations could significantly impact their households. He pledged to work with the Financial Services Commission to develop measures to gradually ease margin and credit trading.

Additionally, he expressed strong skepticism regarding the recent failure of Mirae Asset Securities to allocate shares in the SpaceX IPO, stating that a thorough on-site inspection is underway.

"The fact that 231 million shares were not allocated is highly inconvenient and unsatisfactory for investors," he said. "We need to investigate whether there were communication issues with the lead underwriter or if there are other factors at play. We will conduct a thorough inspection and share measures to prevent recurrence."

Lee described the situation as "absurd," noting that funds had already been collected and exchanged, questioning why the allocation did not occur. He refuted claims that regulatory pressure caused the investment failure.

He also issued a stern warning regarding the recent front-running trading case involving journalists, which has led to multiple arrests and referrals to prosecutors. Lee explained that advanced technology is now being employed to detect suspicious accounts.

"The front-running cases involving journalists are transactions that we cannot monitor manually due to their volume, so we are developing AI-based monitoring systems," he said. "These cases are likely to be detected easily. I hope very few journalists engage in such practices, as they will be exposed quickly. Even in the initial version, we are effectively identifying such types."

Lee's deputy, Lee Seung-woo, also highlighted the technological advancements that have improved detection capabilities, urging journalists to maintain ethical standards. "In the past, it was very difficult to detect front-running due to the short-term nature of transactions and the varying stocks involved, often leading to exclusion from investigations," he said.

However, he noted, "Our staff's IT skills have significantly improved, allowing us to quickly identify suspicious accounts that commonly appear in front-running across hundreds of stocks."

Lee Seung-woo added that there are more front-running cases involving journalists under investigation and urged colleagues to avoid such entanglements.

Furthermore, Lee Chan-jin announced that an investigation has begun into allegations that corporate bonds were issued despite recognizing the potential for insolvency at a recent Central Group affiliate.

"We have started checking whether corporate bonds were issued appropriately and may transition to a full inspection if necessary," he said. "This could be very unfair for investors, as bonds appear to have been sold to individual investors right up until just before the company went bankrupt." He concluded, "We will continue to investigate how this occurred and will share specific results based on our findings."