Svmuu News: Kim Yong-beom, Chief of Staff for Policy at the Office of the President of South Korea, stated today that regarding single-stock leveraged ETFs—which have recently sparked controversy over stock market volatility—the government will explore additional measures to improve the system, but that delisting them would be difficult in practice. Currently, the market size of single-stock leveraged ETFs has exceeded 10 trillion won, and investors are already trading these products. Forcing their delisting “would in itself cause a massive shock to the market,” making delisting impractical. These products were launched following thorough discussion; in addition to meeting investment demand, they also served the policy objective of attracting capital flowing to overseas markets back to the South Korean market, and thus do not constitute a policy failure.
Kim Yong-beom pointed out that these products carry structural risks and require further optimization, particularly regarding the management mechanism for the “tracking error” between the ETF and the price of its underlying asset. To maintain their target leverage ratio, leveraged ETFs may engage in concentrated trading during periods of rapid market volatility, thereby intensifying selling pressure in a short period of time. Regulators, asset management companies, and securities firms need to further discuss how to mitigate the impact these products have on the market during specific periods, including whether adjustments should be limited to 30 minutes, whether the adjustment period can be extended, and whether risk management can be achieved through other derivative instruments. (KBS)