Lee Ok-yeon, the chairman of the Financial Services Commission, officially mentioned the possibility of additional regulations on single-stock leverage products, including lowering leverage ratios and restricting access to professional investors. This marks a shift in the financial authorities' stance, which had previously deemed such adjustments impractical.
During a report to the National Assembly's Political Affairs Committee on July 29, Lee stated, "The issue of adjusting leverage ratios is about whether we should lower the current 2x ratio, which is too high. This could help mitigate volatility. However, we will also consider how to address existing investors and the general meeting of beneficiaries during discussions on the Capital Markets Act."
This indicates a departure from the previous position of the Financial Services Commission, which had stated that changing significant aspects like the leverage ratio of ETFs under the current Capital Markets Act would require a general meeting of beneficiaries, making it practically difficult. Lee's comments suggest that the commission is now open to reviewing procedural requirements for potential adjustments during the legislative discussions.
In response to concerns about the need for additional measures following the increase in the basic deposit requirement to 30 million won starting July 31, Lee noted, "If necessary, we could consider restricting access to professional investors." He also mentioned other potential measures, such as setting limits on individual investment ratios in single-stock leverage products, reallocating assets for liquidity providers, and diversifying hedge transactions.
On the same day, lawmakers pressed financial authorities on their responsibility regarding the introduction and management of single-stock leverage products. Democratic Party lawmaker Kim Yong-man raised suspicions about external pressures during the product's introduction, to which Lee responded, "There were concerns raised by the market, media, and research institutions about the feasibility of such products domestically compared to overseas. We pursued institutional improvements in consultation with relevant ministries, and the products were introduced after revising enforcement decrees and coordinating with those ministries."
People Power Party lawmaker Park Dae-chul criticized the single-stock leverage products as a result of mismanagement by financial authorities. In response, Lee acknowledged, "We take the significant increase in market volatility very seriously."
In light of ongoing market volatility and the growing accountability surrounding single-stock leverage products, financial authorities have been steadily increasing regulatory measures. On July 16, they announced supplementary measures for single-stock leverage products, including an immediate halt to new listings and advertising, and raising the basic deposit from 10 million won to 30 million won. They are also working on enhancing pre-education, managing discrepancies, and expanding minimum trading units.
However, pressure from the political sphere has continued even after the announcement of these supplementary measures. President Lee Jae-myung stated during a Cabinet meeting on July 21, "There are concerns about whether these measures will be sufficient," urging swift and decisive action. The Democratic Party's 'Korea Premium K-Capital Market Special Committee' also held a meeting with securities firms and asset management companies on July 27 to discuss additional measures, including the possibility of further increasing the basic deposit requirement.
In response, the Financial Services Commission announced on July 24 an early implementation plan for strengthening the basic deposit requirement and held a meeting with the financial investment sector on July 28 to assess the effectiveness of the supplementary measures, indicating that they would consider further regulatory adjustments, including raising investment requirements and setting individual investment limits.
* This article has been translated by AI.
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