Restrictions on new listings, higher fees among options under consideration

Financial Supervisory Service Governor Lee Chan-jin answers reporters' questions at a regular press briefing at the FSS headquarters in Yeouido, Seoul, on Monday. [Financial Supervisory Service]
Financial Supervisory Service Governor Lee Chan-jin answers reporters' questions at a regular press briefing at the FSS headquarters in Yeouido, Seoul, on Monday. [Financial Supervisory Service]

South Korea's financial authorities have begun work on investor safeguards for single-stock leveraged exchange-traded funds amid growing concern that retail investors are bearing the brunt of extreme market swings. The move follows sharp losses in single-stock leveraged products tied to Samsung Electronics and SK Hynix, which fell an average of around 25% during a steep Kospi selloff — partly realizing fears that Financial Supervisory Service Governor Lee Chan-jin had voiced in strong terms.

The Financial Services Commission and the FSS are reviewing investor protection measures to address excessive concentration and high volatility in single-stock leveraged ETFs, financial authorities said Tuesday.

"We are aware of the concerns in the market and are closely monitoring stock market conditions," a financial authority official said. "We are at the stage of identifying what measures may be necessary depending on how the situation develops."

Within financial circles, raising the mandatory deposit requirement is the option most frequently discussed. Retail investors currently must deposit 10 million won ($6,510) to trade single-stock leveraged and inverse products. One approach under consideration would raise that threshold to make entry more difficult.

Strengthening investor education requirements is also on the table. Under current rules, investors must complete one hour each of general and advanced coursework through the Korea Financial Investment Association's learning system before they can trade these products.

Some in the industry have raised the possibility that regulators could ask asset managers to increase fees on single-stock leveraged products to reduce their appeal. Temporarily restricting the listing of additional single-stock leveraged and inverse products is another option being discussed.

However, some observers note that major asset managers have already launched such products, meaning any restriction on new listings would have a limited effect on latecomers.

At a press briefing Monday, Governor Lee expressed personal regret over the products' introduction. "I personally reflect and regret whether I should have somehow thrown myself on the floor and blocked their launch," he said. "Most investors are middle-class and ordinary citizens, and when stock market volatility hits, it can deliver a serious blow to household finances — so I am thinking about separate safety measures."

Those concerns were partly borne out by Tuesday's market plunge. The Kospi closed at 8,203.84, down 910.71 points, or 9.99%, from the previous session, barely holding the 8,200 line. On the main board, SK Hynix finished down 12.47% at 2,555,000 won, while Samsung Electronics fell 12.31% to close at 310,000 won.

With the underlying assets in freefall, losses in single-stock leveraged products tracking those stocks were even steeper. The seven SK Hynix single-stock leveraged ETFs listed on the market fell an average of 25.6%. The seven Samsung Electronics single-stock leveraged products dropped an average of 24.6%.


quq@heraldcorp.com