South Korea's Financial Services Commission held a closed-door meeting on July 14 with major securities firms and asset management companies to discuss regulatory measures for single-stock leveraged ETFs. The meeting followed a 31% single-day plunge in the SK Hynix single-stock leveraged ETF on June 13, when SK Hynix shares fell 15.37%. Circuit breakers have been triggered five times since single-stock leveraged ETFs launched on May 27, accounting for nearly 40% of all circuit breaker activations since 2000.
Financial Services Commission Gathers Industry Input on July 14
The Financial Services Commission requested securities firms and asset management companies to propose investor protection measures for single-stock leveraged ETFs, according to financial investment industry sources on July 14. The commission has been collecting expert opinions and plans to share proposals at the closed-door meeting. Industry participants expect discussions will cover raising minimum deposit requirements, strengthening pre-investment education, and tightening credit and margin trading controls.
SK Hynix Leveraged ETF Records 66% Loss in Three Weeks
The KODEX SK Hynix single-stock leveraged ETF listed on May 27 at 27,775 won and rose 58.4% to 44,000 won by June 22. The product then dropped to 14,915 won on June 13, a 66.1% decline over three weeks. According to the Financial Supervisory Service, 92.7% of single-stock leveraged product investors between May 27 and June 12 were retail investors.
Regulatory Options Under Discussion
Industry sources indicate potential measures include raising minimum deposit requirements, strengthening pre-investment education, and tightening credit and margin trading management. Stricter options being discussed include lowering leverage ratios and limiting daily price fluctuation ranges and turnover rates. Market participants view delisting as unlikely due to concerns that forced liquidation would crystallize paper losses for investors and drive capital to overseas leveraged products.
F4 Meeting Scheduled for July 16
The Ministry of Economy and Finance, Bank of Korea, Financial Services Commission, and Financial Supervisory Service will hold an F4 meeting on July 16 to discuss leveraged ETF market impacts. Kim Yong-beom, presidential chief of staff for policy, stated on July 10 that the F4 meeting will examine leveraged ETF market effects and discuss response measures. The Financial Services Commission's presidential briefing on July 15 may also address the issue.
FAQ
Q: What happened to the SK Hynix leveraged ETF on June 13?
A: The SK Hynix single-stock leveraged ETF fell 31% on June 13, when SK Hynix shares declined 15.37%. The product had dropped 66.1% from its June 22 peak of 44,000 won to 14,915 won.
Q: When will South Korean regulators announce new rules for leveraged ETFs?
A: The Financial Services Commission held a closed-door meeting with industry representatives on July 14. An F4 meeting involving the Ministry of Economy and Finance, Bank of Korea, Financial Services Commission, and Financial Supervisory Service is scheduled for July 16 to discuss response measures.
