South Korea to announce measures on single-stock leveraged ETFs soon

[HONG KONG] South Korea will soon announce measures to address the controversy over leveraged exchange-traded funds (ETFs) tied to Samsung Electronics and SK Hynix, the nation’s top financial regulator said.

Financial Services Commission chairman Lee Eog‑weon said in a YouTube program that the regulator was in close talks with the finance ministry, Bank of Korea, and the Financial Supervisory Service to roll out steps to protect investors and ensure market stability.

Lee did not provide any specifics.

When asked whether a temporary trading halt for such ETFs was being considered, Lee said authorities are “reviewing the matter comprehensively, given the potentially greater side effects such a move could entail”.

Pressed on whether leveraged ETFs had amplified volatility, he sidestepped a direct answer and noted that “it’s a matter of degree”.

The remarks come after President Lee Jae Myung on Wednesday (Jul 15) said the stock market has become “quite unstable” following an unprecedented rally, and urged regulatory authorities to prepare follow-up measures.

A meeting between finance-related government bodies will be held as early as Thursday afternoon, Yonhap Infomax reported. 

The Kospi Index fell more than 5 per cent on Thursday as SK Hynix tumbled 10 per cent and Samsung Electronics also fell.

Leveraged ETFs have been blamed by many market participants for intensifying swings due to the daily rebalancing flows required to maintain promised return ratios.

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Volatility has increased for SK Hynix following the debut of its American depositary receipts, with the chipmaker’s Seoul and US listings influencing each others’ moves. BLOOMBERG