The Democratic Party of Korea stressed on the 27th that "it is inappropriate to attach the word ETF to high-risk derivative financial products," referring to single-stock leverage exchange-traded funds (ETFs) cited as a cause of sharp swings in the domestic stock market.
The party's "Korea Premium K-Capital Market Special Committee" held a meeting with chief executive officers (CEOs) of securities firms and asset management companies at the Korea Financial Investment Association (KOFIA) in Yeouido, Seoul, on the same day, discussing the market impact of single-stock leverage products and measures to protect investors.
Oh Ki-hyung, chairman of the K-Capital Market Special Committee, met with reporters after the meeting and said, "Single-stock leverage products are high-risk derivative financial products. They are 'all-in risk products' that disregard the characteristics of diversified investment," adding, "It is inappropriate to attach the word ETF to them." He continued, "Along with changing the name at a societal level, we will also pursue legal amendments if necessary."
He also drew a line on the option of lowering the leverage multiple of single-stock leverage products, saying it is not currently under review. Rep. Kim Nam-keun, the committee's secretary, said, "Asset management companies and securities firms say that the measures currently in place can provide sufficient stability," adding, "Adjusting the multiple is difficult because it requires a beneficiaries' general meeting, but we have confirmed that other approaches are possible."
Rep. Kim also said, "Discussing the delisting of (single-stock leverage products) hastily right now is an issue that would undermine confidence in the stock market," adding, "Rather, we will move in the direction of reducing their marketability and lowering the volatility of products with very high volatility."
Rep. Lee Kang-il said, "The trading frequency of those with deposits of 30 million won or less exceeds 90%, and they account for 60% of total trading value," while Rep. Min Byoung-dug pointed out, "Depending on the case, (the basic deposit) could be raised (from 30 million won) to 50 million won."
Earlier, on the 16th, the Financial Services Commission (FSC) announced supplementary measures including halting new listings of single-stock leverage products and raising the investor deposit threshold to 30 million won. In connection with this, Rep. Kim said, "It was mentioned that raising the deposit to 30 million won would reduce the number of accounts to one-tenth and cut daily trading volume by 60%, which could bring considerable stability."
