S.Korean President orders swift action on leveraged ETFs amid market volatility

President Lee Jae-myung has directed financial authorities to swiftly develop supplementary measures for single-stock leveraged exchange-traded funds (ETFs), which have been identified as a key factor increasing volatility in the KOSPI market. The President noted that the timing of the product's introduction during a period of rapid market ascent may have created a "visual illusion" that exaggerated the severity of the issue.

During a State Council meeting, President Lee acknowledged the financial authorities' efforts to curb foreign stock investments and reduce foreign exchange outflows, but he also recognized criticisms that the leveraged products have excessively amplified market instability. "Authorities made efforts, but the market criticizes that it has excessively amplified market instability," Lee stated. He emphasized the need for prompt and thorough development of supplementary measures, responding to the concerns of market participants who perceive significant inefficiencies and problems with the policy.

Financial authorities had previously announced measures on July 16 to address concerns about increased KOSPI volatility due to leveraged products. These included raising the minimum deposit for new purchases from 10 million won to 30 million won, effective August 5, and extending the required training from two hours to four. Trading, currently in single units, will shift to blocks of 20 units starting in November. However, some critics argue these measures are insufficient.

President Lee expressed concern that the proposed measures might take too long and questioned their adequacy. "I think it's taking too long," he said, adding, "There are concerns that this might not be enough." He urged for bold and swift action, while also acknowledging the difficulty in achieving perfect policies. He also pointed out that the product's introduction at the "peak of a rapid surge" might have created a misleading impression of its impact.

Lee also inquired about the policy's effect on reducing foreign exchange outflows. Kim Yong-beom, the Senior Presidential Secretary for Economic Affairs, reported that individual foreign stock investments significantly decreased in the first half of the year compared to the previous year, suggesting a reduction in outflows. Lee concluded by acknowledging the complex nature of policy-making, where addressing one issue can create problems elsewhere, and encouraged a wise and adept approach to managing the situation.