Financial Services Commission Chairman Lee Eok-won stated today (July 28) that if demand for single-stock leverage exchange-traded funds (ETFs) does not sufficiently subside, the commission will proactively review additional measures, such as setting individual investment limits.

The financial investment industry was urged to disperse the timing of rebalancing, which currently concentrates right before the market close, and to maintain liquidity supply at an appropriate level to prevent overheating transactions among liquidity providers (LPs).

Chairman Lee held a meeting this morning at the Korea Financial Investment Association in Yeouido, Seoul, with major securities firms acting as LPs for single-stock leverage (Korea Investment & Securities, NH Investment & Securities, Kiwoom Securities) and asset management companies (Samsung Asset Management, Mirae Asset Global Investments, KB Asset Management, Shinhan Asset Management), emphasizing these points.

Chairman Lee stated that while the authorities will first assess the impact of supplementary policy measures—such as strengthened basic deposits, the implementation date of which was moved up from August to July 31—they will also "review and prepare additional measures in advance in case demand does not sufficiently subside."

He then mentioned a total volume management plan as an example, which would set an investment limit restricting the proportion of single-stock leverage to within 20% of an individual's total investment amount in financial investment products.

If this plan is actually implemented, it is expected to control demand from both top and bottom, with the strengthened basic deposit raising the entry barrier for investment and the investment limit setting an upper ceiling.

As other examples of potential additional measures, he cited applying preliminary mock trading—already implemented for futures, derivatives, and short-selling transactions—to single-stock leverage, alongside introducing periodic re-education and requirements for prior investment experience.

Chairman Lee instructed the asset management industry, "As there are concerns that the concentration of single-stock leverage rebalancing right before the market close further amplifies market volatility, please disperse the timing of rebalancing."

He explained, "While advancing the rebalancing timing to intraday trading may raise concerns about increased uncertainty in fund returns or tracking errors, if it can reduce closing price volatility and predictive trading by other investors, it can enhance the stability of fund returns and mitigate operational risks."

He also pointed out to the securities industry handling LP duties, "There is a market assessment that current single-stock leverage products involve more than 20 LPs per stock, leading to excessively high transaction volumes driven by increased inter-LP trade execution and expanded arbitrage."

He emphasized, "There are limits to introducing uniform regulations to a market that fluctuates in real time, making it a critical time for the professional industry to make market stabilization efforts by self-regulating liquidity appropriately."

This is interpreted as an intention to have LPs adjust methods such as quote units, volumes, and frequencies within a range that does not widen the discrepancy rate, thereby reducing unnecessary transactions and shrinking overall transaction volumes.

Chairman Lee said, "As the ultimate authority responsible for the financial market, the FSC takes very seriously the fact that recent increased market volatility is shaking investors' expectations in our capital market," adding that the supplementary measures for single-stock leverage will be swiftly pursued.

On the 16th, the FSC announced supplementary policies for single-stock leverage aimed at strengthening basic deposit investment requirements and discrepancy rate management methods.

As the need for prompt implementation emerged afterward, it was decided to move up the implementation date for strengthening basic deposits, strengthen evaluations for preliminary education, and swiftly introduce an additional one-hour measure.

(Photo: Yonhap News)