Financial authorities are set to hold an emergency meeting to devise countermeasures regarding single-stock leveraged exchange-traded funds (ETFs).
The Ministry of Economy and Finance, the Financial Services Commission (FSC), the Financial Supervisory Service (FSS), and the Bank of Korea are scheduled to hold a meeting on macroeconomic and financial issues as early as July 16 to discuss measures to address market turmoil caused by leveraged ETFs.
Following the authorities' approval of the launch of single-stock leveraged ETF products, FSS Governor Lee Chan-jin expressed self-reproach, stating, "I should have blocked it even if it meant lying down to stop it." Deputy Prime Minister for Economy Koo Yun-cheol also stated that he is closely monitoring the expansion of market volatility.
The assessment is that while single-stock leveraged ETFs in the United States have funds dispersed across some 400 stocks from 100 companies, Korea has 16 trillion won in funds circulating in just two companies—Samsung Electronics and SK Hynix—leading to abnormally high volatility.
Consequently, market attention is focused on what prescriptions will emerge from this emergency meeting.
In the market, measures such as raising margin requirements, limiting daily fluctuation rates, or lowering the leverage multiplier to 1.5x to reduce the inherent risk of the products are being discussed.
Another alternative being proposed is to temporarily suspend trading of single-stock leveraged ETFs if their trading volume exceeds a certain percentage of the underlying stock's trading volume.
However, some point out that such technical measures could fuel market confusion and cause losses for investors who have already invested in these products.
It is understood that financial authorities are not primarily considering the option of delisting, which has been raised in some quarters, due to concerns about the side effect of capital flight to overseas ETFs.
Instead, authorities appear to be focusing on devising more fundamental measures, viewing the volatility caused by the concentration in semiconductor stocks as the root cause of the financial market distortion.
The argument is that fundamental measures are needed to ensure that funds flow into productive sectors rather than being trapped in specific stocks.
In this regard, it is reported that the FSC recently requested coordination from the FSS, and the FSS has conveyed its position to the FSC.
However, regardless of what measures financial authorities announce at this week's macroeconomic and financial meeting, they will likely face criticism for hastily approving the listing of leveraged ETFs without properly predicting the risks and side effects of the products.
Reported by Lee Hyeon-yeong | Video by Lee Da-in | Graphics by Yang Hye-min | Produced by SBS Digital News
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