The Democratic Party of Korea K-capital market special committee said it would first review the effectiveness of the supplementary measures released by financial authorities regarding single-stock leveraged products before considering delisting or adjusting the leverage multiple. It also said the "1.5x leverage reduction" plan recently discussed in the market is not under review at this time.
The Democratic Party K-capital market special committee met with reporters after holding a closed-door roundtable on the 27th at the Korea Financial Investment Association in Yeouido, Seoul, attended by securities firms and asset management companies, and released the details of the discussion. The roundtable discussed the operating status of single-stock leveraged products tied to Samsung Electronics and SK hynix and ways to ease market volatility.
Kim Nam-geun, a Democratic Party lawmaker who serves as the committee's secretary, said, "If the government's released measure to raise the minimum margin deposit to 30 million won takes effect, the number of accounts is expected to fall to about one-tenth and trading volume to decrease by about 60%," adding, "We can consider further raising the deposit if necessary after first watching the effect of the implementation."
Asset managers and securities firms at the roundtable were also said to have agreed that it is necessary to first check market changes after the financial authorities' supplementary measures are implemented. Opinions were exchanged that, if volatility is not sufficiently reduced through higher deposits and stronger investor education, additional supplementary steps could be discussed, and the committee said participants also agreed on the need to further strengthen guidance and education on product risks.
The committee drew a line against delisting single-stock leveraged ETFs. Kim said, "Discussing delisting right away could instead undermine market confidence," adding, "It is preferable to approach this by lowering product features to reduce volatility."
The committee also said it is not currently pursuing a plan that had been discussed in the market to reduce the leverage multiple from the current 2x to 1.5x. Oh Ki-hyeong, K-capital market special committee chairperson, said, "We are not reviewing multiple adjustments at this time," adding, "We will first check whether the government measures produce a market-stabilizing effect and then decide whether additional steps are needed."
Previously, the committee said it was reviewing a plan to lower the existing 2x leverage to around 1.5x as a way to ease the volatility of single-stock leveraged ETFs. However, changing the leverage multiple of existing products would require complex procedures such as a beneficiaries' general meeting, and there were concerns about a significant impact on market confidence, raising practical constraints. At the roundtable, there was also a technical idea to adjust the method for calculating the underlying index to reduce the effective leverage, but the committee drew a line, saying it is not at the stage of pursuing this now.
The committee also raised issues with the name "single-stock leveraged ETF" itself. Chairperson Oh said, "ETFs are, by nature, exchange-traded funds premised on diversification, so using the ETF name for single-stock leveraged products is not appropriate," adding, "It is necessary to redefine the name to fit the nature of high-risk derivative financial products."
He added, "From the perspective of protecting retail investors, there is a need to voluntarily limit excessive advertising or marketing and to reexamine the use of the term ETF," and "If necessary, we will also push for improvements to related systems."