The government has begun preparing measures to address single-stock leverage exchange-traded funds (ETFs) tied to underlying assets such as Samsung Electronics (005930.KS) and SK hynix (000660.KS). While the system was introduced to retain domestic investment demand that had been flowing toward high-risk overseas leverage products, it has recently been cited as a factor increasing volatility in the domestic stock market.
Koo Yoon-cheol, Deputy Prime Minister and Minister of Economy and Finance, said at a plenary session of the National Assembly's Finance and Economy Planning Committee Friday that regarding concerns over single-stock leverage ETFs, the government is "in discussions on measures to supplement and minimize the problems."
"We are well aware of concerns that leverage ETFs are causing significant volatility in our stock market," Koo said. "Relevant agencies are closely watching and monitoring the situation."
Single-stock leverage ETFs are products that track the price movements of specific stocks such as Samsung Electronics or SK hynix by about twofold. When the stock price rises, returns grow larger, but conversely, when it falls, losses expand by the same magnitude. From the perspective of individual investors, these are products that can offer high returns in a short period, but critics point out that if concentrated trading occurs, they can increase the price volatility of the underlying stocks.
That day, Rep. Kim Tae-nyeon of the Democratic Party said, "Since the products were launched, the number of KOSPI market stabilization measures has increased sharply," questioning whether investor protection measures had been sufficient. "It is a product that can easily tempt individual investors because a profit can generate double the returns, but the risks are also large," Kim said. "I question whether two hours of online pre-education was sufficient."
In response, Koo said, "We required education and also created certain guidelines, but at this point various concerns are being raised." He added, "We are in the process of discussing measures to stabilize those areas."
However, Koo drew a line against interpretations that the government introduced leverage ETFs for the purpose of managing the exchange rate. "That is not necessarily the case," Koo said. "When comprehensively considering the foreign exchange market and the capital market, we judged that such products were necessary."
Still, he acknowledged that there was a purpose of preventing capital outflows to overseas leverage products. "Before the system was introduced, 2x and 3x leverage ETFs were being operated overseas, and there was a lot of domestic investment flowing in that direction," Koo said. "There was also an aspect of introducing it to block that."
