"Double Leverage for Samsung and Hynix" Retail Investors on Edge... Leveraged ETF Launch Imminent, FSS Issues Advisory

Calls for Accurate Information and Deviation Rate Management
"Review of Institutional Improvements Amid Kosdaq Active ETF Portfolio Disclosure Controversy"

As early as the second quarter of this year, leveraged exchange-traded funds (ETFs) with double leverage based on single blue-chip stocks such as Samsung Electronics and SK Hynix may be launched in Korea. In light of this, the Financial Supervisory Service (FSS) has urged the industry to prioritize investor protection.

On the morning of March 24, the FSS held a meeting at the Korea Financial Investment Association’s conference room in Yeouido, Seoul, with officials from the Korea Financial Investment Association and asset management companies, to discuss strategies for the sound development of the ETF market.

Currently, financial authorities are promoting regulatory improvements for new types of products, such as single-stock leveraged ETFs, with the aim of alleviating domestic and international regulatory asymmetries.

Regarding this, Seo Jaewan, Deputy Governor of the FSS, stated, “While product design should maximize advantages such as investor choice, it is also necessary to take preemptive measures to prevent issues like a spike in short-term trading.” He added, “We hope for the industry’s active cooperation so that the new system can be established smoothly.”

Deputy Governor Seo emphasized investor protection. As ETFs have become a popular means of wealth management among the general public, he underscored that the industry has a significant responsibility to prioritize investor protection.

To this end, the industry was urged to provide accurate information, in order to prevent controversies over exaggerated advertisements regarding returns. In particular, he stressed that investors must be clearly aware of the high risks associated with leveraged products.

He also called for improved tracking error management. Recently, there has been a growing discrepancy between the net asset value and trading prices of ETFs, resulting in increased disclosures of tracking error violations. While this is somewhat unavoidable due to growing market volatility, excessive expansion of tracking errors can cause investor losses. Therefore, Seo requested that asset management firms provide stable bid and ask quotes.

Improving work processes was also highlighted as important. Sometimes, the prices of underlying assets fluctuate sharply when ETF index components are replaced or their weights adjusted before market close. Seo suggested that the industry should introduce processes such as pre-trade impact analysis for weight adjustments and measures to prevent concentrated trading at specific times during the session.

Regarding the recent controversy over the advance disclosure of Kosdaq active ETF portfolio components, the FSS plans to review the need for institutional improvements. This is because advance disclosure can encourage copycat trading by individual investors and may be misused for unfair trading practices.

The FSS plans to continue supporting and supervising the ETF market as its share in the asset management industry grows, and to strictly respond in accordance with regulations should any issues arise.

This content was produced with the assistance of AI translation services.