What Did the Head of South Korea's Financial Supervisory Service Say? Regrets Introducing Leveraged

On June 23, Lee Chan-jin, the head of South Korea's Financial Supervisory Service, expressed regret on the 22nd over the introduction of single-stock leveraged ETFs for Samsung Electronics and SK Hynix, admitting to a policy failure and revealing plans for investor safety measures. Regarding the borrowing investment craze in South Korea, Lee warned of a statistical illusion where the increase in total market capitalization has led to a decrease in the proportion of credit trading financing balances, creating a false sense of security. In his statements at a press conference, he acknowledged the failure of the single-stock leveraged ETF policy, stating, "I deeply regret it." Lee expressed clear regret over the introduction of these ETFs at the end of last year to counter high exchange rates, voicing strong concerns about overheated investments. This system was introduced to redirect retail investor demand for 'overseas stock investments' back to the domestic stock market in response to the persistent high exchange rate of the Korean won. Lee pointed out, "The extremely high turnover rate of this product is only benefiting securities companies. I am personally very concerned that real retail investors are not gaining actual benefits, while only the management and operation systems are profiting. The turnover rate of this product is close to 200%, which means that securities companies could earn up to 10 trillion won in transaction fees. I am reflecting on whether I should have intervened at that time, and I deeply regret it now." Lee warned that leveraged ETFs "only allow brokers to make money" and that investor protection measures are being formulated. He expressed strong concerns about the high turnover rate of leveraged ETFs and warned that the current overheated situation has not eased. "Although the Financial Supervisory Service recently issued consumer alerts, it has not cooled down. Most investors are middle-class and ordinary citizens, and any fluctuations in the stock market could have a huge impact on families, so we are considering additional safety measures." Regarding specific measures, Lee stated, "We are researching solutions that can alleviate external shocks related to credit and will discuss how to phase in measures from financing margins to credit with policy authorities." Addressing concerns about the borrowing investment craze and the statistical illusion, Lee noted that market instability and trading concentration are worsening. "The trading turnover rate has sharply increased, and market instability and volatility have significantly intensified. In particular, the concentration of trading in semiconductor stocks is expanding. Although borrowing investments have also increased significantly, as total market capitalization rises, the proportion of credit financing balances to total market capitalization is decreasing, creating an ironic sense of decline. To avoid being overwhelmed by statistical illusions, we are closely monitoring the situation and taking it seriously." In response to the recent failure of the SpaceX IPO allocation for future asset securities, Lee expressed strong dissatisfaction. "Not a single share was allocated, which I cannot understand. The allocation process was simply unbelievable. From an investor's perspective, this is also very inconvenient and unsatisfactory. If I had not participated in the IPO, I could have bought the stock on the first day of listing, but that money was tied up in the IPO, wasn't it?" Lee later stated, "To protect investors and prevent this from happening again, we will share the results of our inspection regarding future asset securities."