South Korea to Announce Measures on Single-Stock Leveraged ETFs Soon, FSC Chief Says

Lee Eok-weon, chairman of South Korea’s Financial Services Commission, said authorities will soon announce measures to address single-stock leveraged exchange-traded funds, which have been cited as a major source of recent volatility in the domestic stock market.

Appearing on the “Kim Eo-jun’s Humility Is Difficult News Factory” program on July 16, Lee said the products appear to be part of the problem when asked whether they had contributed to recent market swings. Authorities are closely reviewing the issue and will quickly prepare supplementary measures for announcement, he added.

Lee said financial authorities bear ultimate responsibility for the market and should accept related criticism. The Ministry of Economy and Finance, the Bank of Korea, the Financial Supervisory Service and the FSC are in close consultation, he said.

Asked whether a temporary trading halt was being considered, Lee said such a move could produce bigger side effects because markets operate in their own sphere. Authorities are reviewing the matter comprehensively, he added.

Lee also pointed to the rapidly expanding global semiconductor industry as a recent driver of stock-market volatility.

The semiconductor industry has been growing quickly in a supercycle, while share prices have climbed sharply in a short period, he said. Expectations and concerns are alternating with each news report, causing daily swings. Semiconductor stocks around the world, including Samsung Electronics Co., SK Hynix Inc., Micron Technology Inc. and Kioxia Holdings Corp., have continued to fluctuate, he said.

Samsung Electronics and SK Hynix made up 22% of Kospi market capitalization at the end of June last year, 30% at the end of last year and 52% to 53% now, Lee said. Including related stocks such as SK Square Co. and Samsung C&T Corp., that share reaches 60%. In the past, when those stocks swung, the affected portion of the market was 22% or 30%. Now it is 60%, broadening the market impact, he said.

On President Lee Jae-myung’s call to write off debt when repayment is impossible, Lee said some cases involve mechanically extending statutes of limitations without properly examining a debtor’s situation, leading to collection efforts that continue for 10 or 20 years. The aim is to improve that practice, he said.

Financial companies treat borrowers as customers when they make loans, but once delinquency occurs they sell the claims to outside parties and step away from responsibility, Lee said. That leaves debtors repeatedly dealing with new creditors rather than the financial institution from which they originally borrowed.

Financial authorities are already pursuing a plan to separately clean up long-overdue claims. Debts delinquent for more than seven years are considered long-term, while claims of less than 50 million won are relatively small, Lee said. Authorities need to examine whether it is appropriate to keep pursuing collection on such debts and whether they should be resolved, he added.

Noh Jeong-dong, Hankyung.com reporter dong2@hankyung.com