Ahn Cheol-soo Urges Delisting Review of Samsung, SK Hynix Leveraged ETFs

"Trillions of won are evaporating in a single day ... financial authorities must be held accountable"

Ahn Cheol-soo, a lawmaker from the People Power Party, called for a review of delisting leveraged exchange-traded funds tied to Samsung Electronics Co. and SK Hynix Inc., saying they are a main driver of market volatility.

In a Facebook post on July 6, Ahn wrote that investors' assets are also being wiped out by the "negative compounding effect" inherent in leveraged products. All 14 Samsung-SK Hynix leveraged ETFs launched so far posted negative returns over the past month, with losses reaching as much as 35.9%, he wrote.

He called the Samsung-SK Hynix leveraged ETFs a "complete policy failure," saying they were eating away at corporate value and household wealth by trillions of won a day.

Ahn said strong corrective measures are needed to normalize the stock market, including possible delistings. He added that banning single-stock leveraged products and easing regulations on active ETFs capped at a 0.7 correlation coefficient would be more reasonable.

He also demanded accountability from South Korea's financial authorities. President Lee Jae-myung should hold the heads of the Financial Services Commission and the Financial Supervisory Service responsible and dismiss them, Ahn said. Investors are anxiously watching their stock accounts shrink by the day, yet both chiefs have failed on forecasting, response and policy preparation, he added.

Ahn also criticized Lee for standing by while irresponsible public officials focused only on protecting their positions. If the current "roller-coaster Kospi" trend continues, South Korea's stock market will be treated in global markets as an unpredictable speculative market, he said. There is not much time left, he added.

The Bank of Korea also said the so-called "Samjeonnix" ETFs could further amplify market volatility. In a written response submitted on July 5 to Rep. Park Sung-hoon of the People Power Party, the BOK said the market capitalization and trading share of Samsung Electronics and SK Hynix have expanded to the point where they account for more than half of the stock market, and increased investment in single-stock leveraged ETFs could intensify that concentration.

The central bank added that concentration in a handful of companies in the domestic stock market has widened sharply in recent months, helped by strong earnings in the semiconductor sector. Single-stock leveraged ETFs could deepen one-way trading concentration as fund inflows and outflows grow in response to changes in business conditions or shifts in market expectations.

The BOK said it plans to work closely with relevant authorities to address related risks and will strengthen monitoring and inspections of the impact single-stock leveraged ETFs have on the stock market and the financial system.

Kim Hee-sun, Hankyung.com reporter gimme_sun@hankyung.com