The government has begun working on a plan to allow single-stock leveraged exchange-traded funds (ETFs). Aimed at luring back domestic investors who moved to overseas markets, expectations are growing that the "Samsung Electronics 2x tracking ETF," which drew attention after listing on the Hong Kong Stock Exchange last year, could appear on the domestic market.
According to financial authorities on the 18th, the Financial Services Commission recently began work on regulatory reforms to introduce high-risk, high-multiple ETFs in Korea. Specifically, it is reportedly reviewing allowing single-stock leveraged ETF products and raising the multiple cap for index leveraged ETFs from the current 2x to above 2x.
As a follow-up to a meeting on the 13th where Kim Yong-beom, the Blue House policy chief, convened CEOs of major securities firms and asset managers to discuss ways to increase the appeal of the domestic stock market, a financial authority official said, "Given the aggressive investment appetite of domestic investors, the current regulations on leveraged ETFs are strict."
Currently in Korea, ETFs that track the return of a single stock by multiples or track a specific index's return by more than 2x cannot be launched. Under the Enforcement Decree of the Financial Investment Services and Capital Markets Act and the Financial Investment Business Act, the underlying index an ETF tracks must be composed of at least 10 constituents and the weight of a single stock must not exceed 30%.
Unlike Korea's ETF regulations, high-multiple products are already commonplace in overseas markets. A prime example is the "ProShares UltraPro QQQ ETF," which tracks the Nasdaq-100 Index's return by 3x. The "Direxion Daily TSLA Bull 2X Shares ETF," which tracks Tesla's return by 2x, is also well known.
Last year, an ETF that uses Samsung Electronics as its sole underlying asset and tracks twice the stock's daily move appeared on the Hong Kong Stock Exchange (HKSE), not the Korea Exchange (KRX). The ETF, named "CSOP Samsung Electronics Daily 2X Leveraged," rose to No. 4 in net purchases on the back of gains in Samsung Electronics' share price.
The government sees high-risk leveraged ETF products as a way to curb the outflow of domestic stock investors to overseas markets. Even as the KOSPI has continued a strong rally last year and this year, a preference for high-risk, high-return products has been cited as the reason individual investors are pouring funds into the U.S. market.
Meanwhile, along with pushing institutional reforms, financial authorities plan to strengthen oversight to prevent overheated overseas investment sales. The Financial Supervisory Service, which reviewed the overseas business practices of securities firms at the end of last year, is said to have conducted additional on-site inspections of Samsung and Mirae Asset Securities recently, following Toss Securities and Kiwoom Securities last month.