South Korea's Democratic Party to review leveraged ETFs amid market volatility

The Democratic Party of Korea has acknowledged significant investor concerns regarding the recent volatility in the South Korean stock market. The party stated it is "gravely recognizing the concerns of investors" amid sharp fluctuations that have led to the activation of circuit breakers on both the KOSPI and KOSDAQ.

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The Democratic Party recognizes the current market situation and the investors' concerns gravely.

During a supreme council meeting, Han Byung-do, the party's acting leader and floor leader, emphasized the need for close cooperation between the party and the government to reduce uncertainty in the capital market. He noted that many investors are feeling anxious due to the unexpected magnitude of price swings. The party also pointed to a government meeting on July 29th that discussed the causes and responses to the market's instability, where participants agreed that the concentration of demand in single-stock leveraged products had amplified market volatility.

In response, the Democratic Party announced it would "calmly and transparently review" the introduction process of these single-stock leveraged products and assess whether sufficient investor protection measures were in place. The party also commented on the government's recent decision to increase the minimum deposit for these products from 10 million won to 30 million won, allowing only cash deposits. The party stated it would closely monitor the effects of these measures and market reactions through its "K-Capital Market Special Committee" in communication with financial authorities and industry players.

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We will calmly and transparently review the product introduction process and investor protection measures.

Kang Deuk-gu, a supreme council member, proposed the swift formation of a special body involving the party's policy committee, the National Assembly's Political Affairs Committee, financial authorities, and private market experts. He argued that excessive volatility in leveraged ETFs is a key factor behind the market's decline and called for fundamental solutions. Hwang Myung-sun, another member, urged the government to promptly implement supplementary measures for market stabilization, including bold additional actions if necessary, to balance market vitality with investor protection.

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The excessive volatility of leveraged ETFs is one of the core reasons for this situation.

The party also directed criticism towards the ruling People Power Party, advising them against using investor anxiety for political gain, which could further increase market uncertainty and harm investors. They stressed the importance of accurately diagnosing the causes of market instability and developing practical countermeasures. Park Ji-won, a supreme council member, added that the party would examine the need for investment limits on high-risk products like single-stock leveraged ETFs and review the effectiveness of market stabilization measures such as sidecars.

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The government must promptly pursue supplementary measures for market stabilization and take bold additional measures if necessary.