Among U.S. stocks loved by Korea's investors, Tesla shares rose 27% over the past year. But TSLL, a leveraged (including inverse) exchange-traded fund (ETF) that tracks twice Tesla's daily price moves, fell 1.13% in the same period. That is because the greater the share-price volatility, the larger the leveraged ETF's "negative compounding effect."
With the listing on the 27th of leveraged products that track the share prices of individual stocks such as Samsung Electronics and SK hynix at twice the move, the financial authorities issued an investor advisory. The Financial Services Commission said on the 15th, "These products track twice the daily swings in share prices and are structured to concentrate investment in a single stock, so the investment risk is high," adding, "Investors should note that these products carry a far higher loss potential than ordinary ETFs."
In particular, the Financial Services Commission (FSC) noted, "In the process of a single stock's price repeatedly rising and falling, even when the single stock's price ends up unchanged, single-stock leveraged products can see principal continually erode," and guided that they "should be used only in a limited way as a short-term investment tool."
In addition, to reduce investor confusion, the Financial Services Commission (FSC) banned the use of "ETF" in product names and required the label "single stock." It also plans to regulate trading by officers and employees of listed companies, financial investment firms, and securities-related institutions for single-stock leveraged ETFs in line with rules for individual stocks.
Earlier, the authorities decided to allow single-stock leveraged ETFs only for domestic blue chips that meet certain conditions, such as an average market capitalization weight of at least 10% and an average trading value weight of at least 5%. Single-stock leveraged products for Samsung Electronics and SK hynix that meet the requirements will be listed on the 27th.
The Financial Services Commission (FSC) added, "If market conditions change and the underlying asset stock falls short of the requirements, new listings will be restricted," and "for products already listed, if they fall short of the requirements, disclosures must be made without delay, and if the shortfall persists for three months, we will amend the relevant rules to delist them."