Lee Orders Quick Fixes on Samsung, SK Hynix Single-Stock Leveraged ETFs; FSS Chief Says He Is Responsible

President Lee Jae-myung ordered the Financial Supervisory Service and the Korea Exchange to quickly draw up measures to address controversy over single-stock leveraged exchange-traded funds linked to Samsung Electronics Co. and SK Hynix Inc.

At a July 15 policy briefing by the Financial Services Commission and other agencies at the Blue House state guest house, Lee told Financial Supervisory Service Governor Lee Chan-jin that he appeared to be taking heavy criticism over the Samsung Electronics and SK Hynix leveraged ETFs. Lee Chan-jin replied that he bore responsibility as the market supervisor. Lee also asked the Korea Exchange to review flaws in the relevant system and swiftly prepare follow-up steps.

The Financial Services Commission said it plans to work with the Ministry of Economy and Finance, the Financial Supervisory Service and the Bank of Korea on a response to criticism that single-stock leveraged ETFs are amplifying stock-market volatility. Shin Jin-chang, the FSC secretary-general, said at a pre-briefing on July 14 that officials were discussing measures in light of their market impact and would announce them at an appropriate time once the talks are complete.

Lee also expressed strong concern about controlling shareholders of undervalued companies intentionally depressing stock prices to reduce inheritance and gift-tax burdens. He told FSC Chairman Lee Eok-won that legislation such as a law to prevent stock-price suppression appeared to have stalled in the National Assembly.

Lee Eok-won said authorities could impose heavier inheritance and gift taxes on controlling shareholders of listed companies whose shares are excessively undervalued. He added that officials would also pursue penalties for companies that intentionally keep their price-to-book ratios low. Lee urged regulators to win support for policies that are already prepared and move quickly.

The FSC plans from November to publish a list of listed companies whose price-to-book ratios fall below a certain threshold by industry. It is also reviewing a plan to place a separate label on those companies and encourage them to submit corporate value-enhancement plans.

Lee said South Korea's asset allocation is overly concentrated in real estate, calling it a very primitive pattern. That is also producing irrational outcomes in the allocation of resources, he said. He added that normalizing and modernizing the capital market is a very important national policy.

Cho Mi-hyun, Hankyung.com reporter mwise@hankyung.com