The South Korean government has been deliberating for two weeks on measures to improve single-stock leverage ETFs. Despite a public petition calling for their complete cancellation, officials are concerned about the potential backlash from eliminating the products entirely. On July 15, President Yoon Suk Yeol directed the swift development of supplementary measures, indicating that solutions may be forthcoming soon.
The securities industry has proposed several alternatives, including raising the minimum deposit requirements, tailored risk warnings, expanding investor education, and distributing rebalancing trades. These proposals were announced following a meeting hosted by the Korea Financial Investment Association on July 14. Hwang Seong-yeop, chairman of the association, expressed hope that enhancing investor protection efforts and making some institutional adjustments would foster a more trustworthy market environment.
Financial authorities, including the Financial Services Commission and the Financial Supervisory Service, have yet to provide specific responses. Reports suggest that the cancellation of the products or restrictions on new listings are not under consideration. However, there are expectations that while industry feedback will be taken into account, additional measures may be introduced.
Experts from academia have assessed the industry's proposed measures as a necessary compromise to balance investor demand and market stability. Kim Sang-bong, a professor of economics at Hansung University, stated, "It is not practically feasible to cancel or abolish single-stock leverage ETFs immediately. In the current situation, raising the minimum deposit and strengthening risk warnings are sufficient initial measures." He added that although the size of the ETFs may be small, the volatility of the underlying assets could significantly increase market volatility, suggesting that a more thorough review of market impacts and investor protection should have occurred during the initial approval process.
Lee Jeong-hwan, a professor at Hanyang University’s Department of Economics and Finance, noted, "Eliminating the products is realistically difficult, and sudden liquidation could lead to investor losses and market chaos. Pursuing cancellations in a crowded product landscape could also raise compensation issues, creating significant burdens." He concluded that reducing marketing efforts and enhancing investor protection mechanisms are currently the most practical alternatives for the government and the industry.
* This article has been translated by AI.
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