FSS chief who said he should have 'blocked' single-stock leveraged ETFs filed with police

Lee Chan-jin, chief of the Financial Supervisory Service, has been filed with police after saying he regrets not blocking the introduction of single-stock leveraged exchange-traded funds.

A civic group called the People's Livelihood Countermeasures Committee filed a complaint Thursday with the Seoul Metropolitan Police Agency, calling for Lee to be punished on charges of abuse of authority and dereliction of duty.

The complaint cited remarks Lee made at a press briefing on Monday, in which he said single-stock leveraged ETFs had become "a source of great concern due to growing side effects" and that the regime had been rushed at the time of its introduction. "I am personally reflecting on whether I should have blocked it by any means necessary — even by lying down in front of it — before accepting the securities registration statement," he said.

The group argued that the high turnover rates and investment risks of single-stock leveraged ETFs had been foreseeable, yet financial authorities operated the regime without adequate safeguards — conduct it said constitutes abuse of authority and dereliction of duty.

The group also said Lee's belated acknowledgment of the problems after the regime's introduction amounted to an abdication of responsibility for the head of a supervisory body, and urged a thorough investigation.

At the Monday press briefing at the FSS office in Yeouido, Seoul, Lee said the influence of single-stock leveraged ETFs was growing and that the FSS was in discussions with the Financial Services Commission, Korea Exchange and other relevant bodies on measures to protect investors and manage risk.

Lee said that because most investors in these products are middle-class or lower-income households, a sharp market swing could deal a serious blow to household finances, and that the FSS was reviewing phased stabilization measures including restrictions on unsettled trades and margin financing. He added that he had "serious personal concerns about outcomes that only fatten securities firms' bottom lines."

Single-stock leveraged and inverse ETFs, launched on May 27, have drawn a flood of retail investor money — concentrated mainly in Samsung Electronics and SK Hynix — pushing their combined market capitalization above 14 trillion won ($9.1 billion). Concerns have been raised, however, that the concentration of trading in specific stocks could amplify market volatility.

Retail investors account for 92 percent of holdings in these products, according to the FSS. The turnover rate on some products approached 200 percent during periods of high volatility. In response, the FSS issued a consumer alert on June 18, urging investors to exercise caution.