Lee Chan-jin, head of the Financial Supervisory Service (FSS), has sparked controversy with his criticism of single stock leverage exchange-traded funds (ETFs). His remark that these products are "only enriching securities firms" has left the industry visibly unsettled. There are concerns that the financial authorities, which allowed the introduction of these products under the guise of diversifying offerings in line with global capital markets, are shifting responsibility onto the securities firms that merely acted as sales agents. The Financial Services Commission (FSC), the governing body, also appears displeased, interpreting Lee's comment that they "should have blocked it even if it meant lying down" as a veiled criticism of their approval decision.
According to the Korea Exchange on June 23, the total net asset value of 16 single stock leverage and inverse ETFs based on Samsung Electronics and SK Hynix reached 16.1955 trillion won as of the previous day's closing. Since their launch on May 27, less than a month ago, these products have attracted 6.5961 trillion won in funds. During a press conference the day before, Lee expressed skepticism about the single stock leverage ETFs from the outset, stating, "They are only enriching securities firms." He particularly highlighted that the turnover rate had once reached 200%, indicating that the trading fees borne by investors could be substantial.
The trading volume has indeed been significant. The KODEX SK Hynix single stock leverage ETF, which has the largest net asset value, recorded an average trading value of 32.543 trillion won and an average trading volume of 10.984 million shares since its listing. Other major products, such as the TIGER SK Hynix single stock leverage ETF (18.456 trillion won) and the KODEX Samsung Electronics single stock leverage ETF (20.815 trillion won), also reported high trading volumes. The average daily trading turnover rate for single stock leverage ETFs, calculated based on trading value since their listing, was 123.82%. Inverse products even exceeded turnover rates of 300% to 800%.
However, the securities industry disagrees with the view that high turnover rates are inherently problematic. They argue that the financial authorities have emphasized that single stock leverage ETFs are designed for short-term investment rather than long-term holding, making active trading a natural outcome of the product's characteristics. Some industry insiders pointed out that a high turnover rate does not necessarily lead to increased market volatility. One official stated, "If unusual trading is not occurring, a high turnover rate can also indicate ample liquidity," adding that it is difficult to conclude that active trading alone is a primary cause of increased volatility.
Securities firms also push back against claims of exaggerated commission revenues. Since the COVID-19 pandemic, competition in retail trading has intensified, driving domestic stock trading commissions down to nearly zero. Currently, major securities firms charge online trading commissions for domestic stocks ranging from 0.003% to 0.015% during promotional events. The cumulative trading value of the 16 newly listed products over approximately 18 trading days is estimated to be around 170 trillion won. Applying the lowest commission rates in the industry to this trading volume suggests that the commissions securities firms could earn would amount to only about 5 billion to 26 billion won. While the trading volume is substantial, the industry argues that the assertion that only securities firms are profiting is somewhat misleading. An industry representative remarked, "It is difficult to accept that responsibility is being shifted to the sellers of products that were approved by the financial authorities."
The FSC is also paying attention to the context of Lee's remarks. An FSC official stated, "Lee's comments are surprising," adding, "We are unsure if this was a statement agreed upon with the working-level staff." Regarding Lee's mention of 'measures to be taken,' the FSC indicated that, given that less than a month has passed since the product launch, specific regulatory measures are not yet under discussion.
* This article has been translated by AI.
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