President Lee orders faster action on share-price suppression bill, leveraged ETF curbs

President Lee Jae Myung listens to ministry briefings at the Yeongbingwan of Cheong Wa Dae on Wednesday. [Cheong Wa Dae press pool]

President Lee Jae Myung on Wednesday ordered officials to accelerate passage of a bill to prevent deliberate share-price suppression and to move quickly on measures addressing leveraged ETFs. Financial regulators said they would respond in kind.

Lee chaired ministry briefings at Cheong Wa Dae on Wednesday, receiving reports from the Ministry of Economy and Finance, the Ministry of Statistics, the Financial Services Commission and the Ministry of Planning and Budget. Calling for the normalization of the stock market, he said legislation including the anti-share-price-suppression bill "is not moving well and is being delayed."

The so-called anti-share-price-suppression bill — an amendment to the inheritance and gift tax law — is designed to prevent major shareholders from deliberately keeping their company's share price artificially low ahead of a succession in order to reduce inheritance or gift tax liabilities.

Lee told officials to "get cooperation by any means and pick up the pace," and said "normalizing and advancing the capital market is a very important national policy."

FSC Chairman Lee Eok-won said the anti-suppression legislation takes two forms: one approach involves amending the inheritance and gift tax law, while the other would impose penalties on companies that intentionally keep their price-to-book ratio low. Both options are under review, he said.

He went on to say that "trust is the most fundamental element of the capital market, so we are continuing to root out share-price manipulation, and the whistleblower reward system is also progressing well," adding that "protecting shareholder value is extremely important — following amendments to the Commercial Act and the treasury-share regime, we have announced a draft amendment to prohibit dual listings as a rule while allowing exceptions, and are gathering public opinion, with full implementation set to begin within July."

He also said the Kosdaq market is being steered toward expanding technology-tailored fast-track listings to allow innovative companies to enter more easily, while insolvent firms are removed more swiftly — a dual effort to secure both trust and innovation.

FSC Chairman Lee Eok-won speaks at the ministry briefing chaired by President Lee Jae Myung at the Yeongbingwan of Cheong Wa Dae on Wednesday. [Cheong Wa Dae press pool]

South Korea's failure to secure inclusion in the MSCI Developed Markets index also came up. Lee asked why the country's stock market had not been admitted, noting that "the domestic equity market has been quite unstable — it surged historically in a very short period, and some time and volatility may be needed for it to stabilize," while adding that "MSCI index inclusion would help stabilize the stock market internationally, so why isn't it happening?"

Deputy Prime Minister Koo Yun-cheol, who also serves as minister of economy and finance, pushed back, saying "it is not that things are not going well — we have our own pace." He said a sudden full opening of the foreign exchange market before it is ready could have adverse effects, and that significant regulatory improvements would be made by early next year.

Turning to leveraged ETFs tied to Samsung Electronics and SK Hynix, Lee said officials should "swiftly draw up supplementary measures," asking "it seems many people have been hurt recently because of the Samsung and SK Hynix ETFs — isn't the Korea Exchange also in an uproar over the ETFs?" Financial Supervisory Service chief Lee Chan-jin replied that "as market supervisor, we bear responsibility and accept it willingly," he said.

Lee also said that "when new systems are first introduced, side effects sometimes cause confusion — that cannot always be avoided, but such things should be handled with care," urging officials to "introduce measures that are absolutely necessary quickly, even in the face of resistance, while proceeding cautiously on those that remain controversial."

The government launched single-stock leveraged products in May that allow investors to bet twice on the share-price movements of Samsung Electronics and SK Hynix. The products have drawn sustained criticism for amplifying volatility in the domestic stock market.

th5@heraldcorp.com