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🇰🇷 South Korea /Economy & Trade

Leveraged ETFs Linked to Samsung, SK Hynix Face Scrutiny Over Market Volatility

From Hankyoreh · () Korean

Translated from Korean, summarized and contextualized by DistantNews.

At a glance

News Named sources Under investigation
  • Financial regulators are urging asset management firms to exercise self-regulation regarding leveraged ETFs linked to Samsung Electronics and SK Hynix.
  • These ETFs have caused extreme volatility in the stock market, leading to calls for accountability.
  • The Financial Supervisory Service (FSS) held a meeting with asset management CEOs, emphasizing the need to prevent false and exaggerated advertising.

South Korea's financial regulators are grappling with the extreme market volatility caused by leveraged exchange-traded funds (ETFs) tied to single stocks like Samsung Electronics and SK Hynix. These 16 leveraged ETF products, listed just over a month ago, have been blamed for causing significant fluctuations in the KOSPI index, leading to market concerns.

Investors primarily rely on fund advertisements when choosing ETFs, making false or exaggerated advertising by fund managers a very serious issue in terms of investor protection.

— Lee Chan-jinGovernor of the Financial Supervisory Service (FSS), speaking at a meeting with asset management company CEOs.

Despite calls for accountability from the market, the Presidential Office's policy office, the Financial Services Commission, and the Financial Supervisory Service (FSS) have offered little concrete action, repeating only that they are "monitoring the situation." FSS Governor Lee Chan-jin, who previously expressed regret for not preventing the launch of these products, convened a meeting with CEOs of 20 asset management firms. During the meeting, he urged them to refrain from false and exaggerated advertising, stating that such practices are a serious issue for investor protection.

"It is very regrettable that cases of exaggerated advertising have frequently occurred at large asset management companies," Lee stated, also requesting that firms ensure thorough management of the rate of deviation between ETF prices and their net asset value, in cooperation with liquidity providers.

It is very regrettable that cases of exaggerated advertising have frequently occurred at large asset management companies.

— Lee Chan-jinGovernor of the FSS, expressing disappointment during the meeting with asset management CEOs.

The market has seen extreme volatility daily due to the concentration on Samsung Electronics and SK Hynix, amplified by their leveraged products. The total net assets of domestically listed ETFs have surged significantly. The trading volume for these two single-stock leveraged ETF products alone reached 10.1157 trillion won on a recent day, accounting for 31.6% of the total ETF trading volume. As of the 13th, all single-stock leveraged products for Samsung Electronics and SK Hynix have entered loss-making territory.

We ask that you also make every effort to manage the rate of deviation, along with liquidity providers, during the ETF management process.

— Lee Chan-jinGovernor of the FSS, urging asset management firms to manage ETF price deviations.
DistantNews Editorial

Originally published by Hankyoreh in Korean. Translated, summarized, and contextualized by our editorial team with added local perspective. Read our editorial standards.

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