By Heejin Kim and Sherin Sunny
SEOUL, July 16 (Reuters) – South Korea’s top financial regulator will announce new measures on single-stock leveraged exchange-traded funds soon, its chief said on Thursday, amid worries about the effects of such instruments on financial market stability.
The Financial Services Commission will “closely inspect and review improvement measures” on the ETFs soon, Chairman Lee Eog-weon said in a radio interview on Thursday, when asked how the product affected the high volatility of South Korea’s stock market.
“This is basically a high-risk product,” Lee said. “We have explained to investors its risks.”
When asked whether the regulators are temporarily suspending trading in the product, Lee said such a measure could cause a “bigger side-effect” in markets.
In a separate move, South Korea’s finance minister will hold a meeting on Thursday afternoon to discuss the marketss, the ministry said without elaborating further.
Leveraged ETFs have been blamed for wild swings in South Korea’s stock market as most of them are tied to Samsung Electronics and SK Hynix, which together now account for just over half of the benchmark KOSPI.
Inki Cho, a senior financial market strategist at online trading platform Exness, said FSC intervention was “overdue”.
“This is a correction of a known policy error. Likely measures include tighter leverage caps, stricter retail suitability requirements, or volatility-linked circuit breakers on these specific products,” he said.
“The announcement itself is a near-term risk though – aggressive measures could trigger a rush to exit ahead of implementation, amplifying the very volatility the FSC is trying to fix.”
Longer term, however, it would be a net positive for market credibility, he added.
The KOSPI plunged more than 6% on Thursday in its latest swing that has seen it head into a bear market but still remain by far the world’s best-performing major equity market this year.
In June, the head of South Korea’s market watchdog offered a rare mea culpa, saying the regulator had been too hasty in approving such products.
The ETFs helped drive retail investors’ borrowed investment into equities to a record 60 trillion won ($40.39 billion) as of the end of May.
($1 = 1,485.5000 won)
(Reporting by Heejin Kim and Sherin Sunny; Additional reporting by Jihoon Lee and Sameer Manekar; Editing by Muralikumar Anantharaman and Sam Holmes)
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