The opposition party urged financial regulators Wednesday to draw up remedial measures for single-stock leveraged exchange-traded funds, which have been blamed for sharp swings in the Kospi, while the ruling party said the government was too slow to announce countermeasures and called for greater efforts to stabilize the stock market.
The National Assembly's Political Affairs Committee held a plenary session Wednesday, receiving operational briefings from nine financial institutions including the Financial Services Commission, the Financial Supervisory Service and Korea Development Bank.
People Power Party lawmaker Park Dae-chul said the collapse of single-stock leveraged ETFs was "a man-made disaster caused by the FSC and the FSS," adding that financial regulators bore responsibility for creating what he called a "two-piece set" — a generation of people unable to afford rent and retail investors wiped out in the stock market. "The public's anguish is nothing short of hell," he said.
Fellow PPP lawmaker Park Sung-hoon said there were concerns that the domestic stock market had "degenerated into a frenzied casino," and claimed that market observers had pointed to pressure from Cheong Wa Dae to boost share prices ahead of local elections as the force behind the launch of the ETF products.
Park also cited FSS Governor Lee Chan-jin's remarks at a press briefing on July 22, in which Lee said he personally regretted not having done more to block single-stock leveraged ETFs. Park said that knowing of the "fatal side effects" yet allowing them to proceed amounted to "an explicit declaration of dereliction of duty."
Lawmaker Song Eon-seog said there was widespread suspicion that the ETFs had been rushed through "without proper review, on the belief that single-stock leverage would help push up share prices and benefit the election." He said the stock market was "in complete disarray" on Wednesday and called on the FSC chairman to offer a sincere apology.
Democratic Party lawmaker Kim Yong-man said it was reasonable to view the launch of single-stock leveraged ETFs as a source of market volatility. "There were calls to fix the ETFs as early as June, but the countermeasures were not announced until mid-July," he said. "Many investors feel that was too late."
Fellow Democratic Party lawmaker Kim Hyeon-jeong said that while ETFs are generally understood to mean diversified investment, the so-called "Samjeon-nix" ETFs — tracking Samsung Electronics and SK Hynix — are high-risk products concentrated in specific stocks. She said experts had suggested dropping the ETF label altogether, since the name gives investors the impression of a stable product.
Lawmaker Lee Gang-il said the ETFs "inevitably face criticism for having been launched at the wrong time," and said focusing solely on excessive investment by retail investors would not be enough. "To make countermeasures more effective, we need to examine what influence foreign asset managers are having," he said.
Lawmaker Park Hong-bae said regulators should "actively consider" raising the minimum deposit requirement for the ETFs to 50 million won ($34,100), and said adjusting the leverage target ratio appeared feasible through a revision to enforcement decrees, though further review would be needed.
mp1256@heraldcorp.com
