Retail investors account for 92 percent of trading in Samsung Electronics and SK Hynix single-stock leverage ETFs launched in May; FSS chief warns of losses up to 37 percent in consecutive down markets, calls churning structure akin to skimming fees from a gambling operation, and says AI monitoring is already catching front-running journalists

Financial Supervisory Service chief Lee Chan-jin [Yonhap]
Financial Supervisory Service chief Lee Chan-jin [Yonhap]

Financial Supervisory Service chief Lee Chan-jin on Monday sharply criticized newly launched single-stock leverage exchange-traded funds tied to Samsung Electronics and SK Hynix, comparing their fee structure to "taking a cut from a gambling den." Lee said heavy churning driven by retail investors risks inflicting serious losses on individuals and distorting the broader market.

Speaking at a press briefing at the FSS on Monday, Lee said the two ETFs — launched May 27 — had grown rapidly, with retail investors accounting for 92 percent of all trading. "We have confirmed cases where losses reached 37 percent during consecutive down-market sessions," he said.

Lee said the pace of trading had produced a "tail wagging the dog" dynamic. "When we factor in the trading turnover rate, we estimate that the total brokerage fees borne by investors could reach somewhere in the 5 trillion to 10 trillion won range," he said.

"It is no different from taking a cut at a gambling table," Lee added, saying the FSS needed to examine whether the structure was placing an excessive burden on investors.

The FSS is also considering additional safeguards, citing concern over the potential impact of retail investor losses on household finances.

"We are discussing risk management measures with the Financial Services Commission in preparation for the possibility of a household financial shock," Lee said. "We will look into whether additional investor-protection measures are needed."

Lee also expressed personal regret over the approval process for the products, saying he had been reflecting on the decision made when they were introduced at year-end.

On the FSS examination of Mirae Asset Securities, Lee said the review was triggered by the controversy over the failed allocation of SpaceX pre-IPO shares and was focused on investor protection — but he pushed back on characterizations of the probe as open-ended. "Describing it as an indefinite examination is not appropriate," he said.

Lee said the core of the examination was whether the registration procedures for roughly 4,000 professional investors had been conducted properly and whether investor protection obligations had been met.

On the failure to deliver SpaceX share allocations, Lee said he still found it difficult to understand, but drew a clear line: "The allocation issue itself is not a matter directly related to the financial authorities."

Mirae Asset Securities had earlier faced investor complaints after SpaceX shares were not allocated as part of an investment product it had offered. The FSS is currently reviewing the entire process to determine whether investor protection standards were met.

Lee also said the FSS was building an AI-based monitoring system in response to a series of front-running cases involving journalists that have recently come to light.

"Grouping the cases confirmed so far, there are about four," Lee said. "Two cases from November last year were referred to prosecutors first, and I understand some individuals were detained."

He added that a case recently reported in the media had also been referred to prosecutors, while one remaining case was still under investigation.

"The volume of transactions and data is too vast to detect journalist front-running through manpower alone," Lee said. "We are currently developing an AI-based monitoring system."

"Detection happens faster than you might expect," he warned. "Even the early version is producing solid results — I would strongly urge people not to engage in this kind of behavior."

Lee said that as the AI system becomes more sophisticated, the FSS may share some information with market participants as a preventive measure, but added that specific detection methods constituted trade secrets and could not be disclosed.


th5@heraldcorp.com