Lee Sought Faster Rollout of Single-Stock Leveraged ETF Curbs, Aide Says No New Measures Ordered

Kim Yong-beom says swift implementation of leveraged ETF measures is the top priority

Kim Yong-beom, chief policy secretary at South Korea’s presidential office, said on July 22 that President Lee Jae-myung’s call to quickly reinforce rules on single-stock leveraged exchange-traded funds did not amount to an order for new measures.

Speaking at a presidential office briefing, Kim said Lee was asking when the measures already announced would take effect and urging officials to find ways to implement them sooner.

“The package unveiled previously includes fairly significant changes, so the top priority is to carry it out quickly,” Kim said. Authorities should assess its impact first and then consider whether any parts need to be supplemented, he added. “Since the effects have not yet appeared, it is premature to say additional steps are needed.”

Kim also addressed remarks he made in a broadcast interview about easing the selling burden associated with keeping ETF price gaps in line. He said there may be room for regulators and the industry to discuss a more flexible interpretation of the discrepancy rate, or the gap between an ETF’s net asset value and its market price.

The Financial Services Commission announced its “measures to improve single-stock leveraged products” on July 16. They included raising the minimum deposit requirement to 30 million won ($21,700) from 10 million won ($7,200), excluding substitute securities such as stocks and bonds from deposit calculations so that only cash counts, increasing the ETF trading unit to 20 shares from one, and tightening asset managers’ and brokerages’ responsibility for discrepancy rates.

Lee has described single-stock leveraged ETFs as a main driver of recent sharp stock-price swings and called for supplementary measures to be prepared swiftly and thoroughly.

At a cabinet meeting at the presidential office on July 21, Lee said there were competing views on two-times leveraged products tied to Samsung Electronics Co. and SK Hynix Inc. Some analysis found they helped reduce capital outflows, while others said they worsened instability in the stock market.

After Financial Services Commission Chairman Lee Eok-won said overseas markets already offered leveraged products based on Korean assets and that domestic products were needed for investor protection and capital-market advancement, the president said the products had nonetheless become a source of complaints from local investors.

“Authorities may have sought the policy effect of exchange-rate stability, but that is not something ordinary people should be expected to take into account,” Lee said.

Referring to the recently announced measures, he added that criticism had emerged over whether they would be enough and instructed officials to act quickly and boldly on any necessary response.

Kang Kyung-ju, Hankyung.com reporter qurasoha@hankyung.com