Key facts
- South Korea's top financial regulator regrets the approval of single-stock leveraged ETFs.
- These ETFs, tracking Samsung Electronics and SK Hynix, have shown significant negative side effects for retail investors.
- Retail investors account for about 92% of the holdings in these leveraged ETFs.
- Authorities are considering new regulatory measures, including curbs on margin trading and enhanced monitoring.
- The FSS is also investigating a separate case involving Mirae Asset's failed allocation of SpaceX shares to investors.
South Korea's top financial regulator has expressed regret over the recent launch of single-stock leveraged exchange-traded funds (ETFs), citing growing risks for retail investors and market concentration. Lee Chan-jin, governor of the Financial Supervisory Service (FSS), stated that while the intended benefits of these products have been minimal, their side effects have become "too significant."
Lee personally regretted the timing of the approval, noting that the products encourage excessive trading and market concentration, primarily benefiting financial firms and liquidity providers rather than investors. He questioned their suitability for retail investors, who comprise about 92% of the holders of these ETFs. Assets under management in leveraged ETFs tied to Samsung Electronics and SK Hynix have surged to over 14 trillion won since their launch on May 27.
The FSS is now considering targeted regulatory measures, including strengthening trading monitoring, improving credit risk controls, enhancing investor disclosures, and exploring restrictions on margin trading and securities lending. These discussions involve the Financial Services Commission and the Korea Exchange.
In a separate matter, Lee also criticized Mirae Asset Securities' handling of a SpaceX investment program, where investors received no share allocations despite completing fund transfers. The FSS is reviewing the incident to establish clearer guidelines for firms managing similar offshore investment products, aiming to improve investor predictability and transparency.