FSC Chairman Lee Eok-won answers lawmakers' questions at a plenary session of the National Assembly's Political Affairs Committee on Wednesday. [Yonhap]
FSC Chairman Lee Eok-won answers lawmakers' questions at a plenary session of the National Assembly's Political Affairs Committee on Wednesday. [Yonhap]

FSC Chairman Lee Eok-won said Wednesday that adjusting the leverage ratio of single-stock leveraged ETFs could help ease market volatility, and pledged to examine the issue during the relevant bill revision process. Lowering the current 2x leverage ratio could be expected to reduce price volatility.

Lee made the remarks at a National Assembly Political Affairs Committee briefing, responding to a question from Democratic Party of Korea lawmaker Kim Hyeon-jeong on the need to introduce a variable leverage structure. "Adjusting the ratio seems like it would be effective in terms of easing volatility," he said. He then added, "We will look into how to handle matters such as investor beneficiary meetings during the bill revision process."

Lee also raised the possibility of capping total exposure, saying there was "a way to reduce the scale by setting a limit on a portion of the total investment amount so that only partial investment is allowed." He added that the FSC is also reviewing options including spreading out rebalancing times and reducing trading volumes.

He said the FSC would also examine supplementary measures proposed by Political Affairs Committee members, including raising the additional deposit requirement, adjusting the leverage ratio of single-stock leveraged products, and restricting new purchases by professional investors.

Lee said that setting the deposit requirement at 30 million won ($20,500) in cash "would have the effect of reducing daily trading volume by 60 percent, according to market participants," and added, "We will monitor market conditions and consider various options, including raising the deposit further if necessary."

On criticism that leveraged ETF products have fueled volatility, Lee said he takes "the significant expansion of market volatility very seriously."

"As the person ultimately responsible for financial markets, we naturally bear that responsibility heavily," he said, adding that the FSC would "make every effort to implement supplementary measures swiftly, and act boldly with additional steps if needed."

Financial Supervisory Service Governor Lee Chan-jin also said Wednesday that he is "taking the single-stock leverage issue very seriously" and pledged to "make every effort to minimize volatility."

Asked about his remark at a press briefing last month — in which he said regulators "should have blocked the product even if it meant lying down in front of it" — Lee Chan-jin explained that the comment was made "in the context of volatility emerging in Wonju," and was intended to protect investors. "There was no other context," he said.


th5@heraldcorp.com