Lead

South Korea's chief financial regulator said Tuesday it will consider additional measures to dampen demand for recently introduced single-stock leveraged exchange-traded funds (ETFs), which have been blamed for heightened volatility in the stock market. The announcement follows President Lee Jae Myung's call for prompt complementary measures.

Coverage Comparison

President Lee Jae Myung called for prompt complementary measures regarding single-stock leveraged ETFs while receiving policy briefings from economy-related government ministries and agencies at the presidential office of Cheong Wa Dae, according to Yonhap News. His remarks came as the ETFs, introduced in May, have been cited as key drivers of recent volatility in the domestic stock market.

In a separate report, Yonhap detailed that Lee Eog-weon, chairman of the Financial Services Commission (FSC), said at a meeting with local brokerages and asset management firms that he will assess the impact of a new policy raising the minimum cash deposit for investing in single-stock leveraged ETFs to 30 million won (US$20,400), effective Friday. The government moved up the implementation of the deposit requirement by several weeks to help stabilize the market and protect investors.

Key Claims

  • The minimum cash deposit required to invest in single-stock leveraged ETFs will be raised to 30 million won, effective Friday.
  • The government accelerated the implementation of the deposit requirement to help stabilize the market and protect investors.
  • President Lee Jae Myung called for the swift implementation of such measures to calm the market.
  • A possible total volume management measure could cap investment in such ETFs at 20 percent or less of an individual's total financial investment portfolio.
  • Single-stock leveraged ETFs linked to Samsung Electronics Co. and SK hynix Inc. have been widely viewed as key drivers in recent stock market volatility.
  • Samsung Electronics and SK hynix account for roughly half of the KOSPI's total market capitalization.

Context

Single-stock leveraged ETFs, introduced in May, track the daily performance of Samsung Electronics and SK hynix. As these two companies account for roughly half of the Korea Composite Stock Price Index's (KOSPI) total market capitalization, the products have been cited as one of the factors contributing to heightened volatility in the benchmark index. Top policymakers, including Finance Minister Koo Yun-cheol, have voiced concerns over the side effects of the ETFs and pledged to draw up complementary measures to address related problems and better protect investors, as reported by Yonhap.

At the meeting, Lee Eog-weon said, "We will also review and prepare additional measures in advance in case demand does not subside sufficiently," according to Yonhap. He proposed a total volume management measure as one possible option that would cap investment in such ETFs at 20 percent or less of an individual's total financial investment portfolio.