FSC chief denies Cheong Wa Dae directed single-stock leveraged ETF launch

Financial Services Commission Chairman Lee Eok-won denied opposition allegations that the introduction of single-stock leveraged exchange-traded funds was ordered by Cheong Wa Dae.

Lee said the products were introduced through an amendment to an enforcement decree under the FSC's jurisdiction, and that the decision reflected market demand and a range of opinions gathered over time.

Speaking at the National Assembly's Policy Committee national audit of the FSC on Thursday, Lee responded to opposition lawmakers' questions about whether Cheong Wa Dae had directed the launch of single-stock leveraged ETFs. "That is not the case," he said.

Responding to a question from People Power Party lawmaker Park Jun-tae, Lee said, "We heard various opinions," adding, "The basis for the introduction was the amendment to the enforcement decree, and that amendment falls under the FSC's jurisdiction."

He gave similar answers to follow-up questions from other People Power Party lawmakers. "There had long been calls asking why such products were available abroad but blocked here at home," he said, noting that the need for them had been raised repeatedly.

Single-stock leveraged ETFs track up to twice the daily return of individual stocks such as Samsung Electronics and SK hynix. Domestic ETFs had previously been barred from concentrating investment in a single stock under diversification requirements, though similar products had been traded in Hong Kong and elsewhere.

The FSC moved to amend the relevant enforcement decree in January, citing the need to address regulatory imbalances between domestic and foreign ETFs and to expand investor choice. Following the amendment in April, 16 related products were listed on the domestic stock market for the first time on May 27.

After their launch, however, controversy arose as speculative money poured into large-cap semiconductor stocks such as Samsung Electronics and SK hynix, amplifying market volatility. Because single-stock leveraged ETFs track twice the return of the underlying stock, losses are also doubled when share prices fall.

Critics also raised concerns that the daily rebalancing asset managers must carry out to maintain the set leverage ratio generates additional selling pressure when share prices decline, further amplifying market volatility.

Financial regulators responded by temporarily suspending new listings of single-stock leveraged ETFs, banning promotional and event-driven marketing, and tightening regulations more broadly. The minimum deposit requirement for investors was also raised from 10 million won ($7,470) to 30 million won in cash.

Controversy over the scale of investor losses from single-stock leveraged ETFs has continued. A recent report by a foreign investment bank estimated that retail investors had suffered losses of around 54 trillion won ($40.3 billion) from the products.

On that report, Lee said it "was not an official publication — it was an informal market commentary from a trading desk, and the actual content is not accurate."

On the broader issue of the products having amplified domestic market volatility, Lee said, "Regardless of the policy rationale behind the introduction, I am sorry that it has ultimately caused various losses, concerns and harm." He added that the FSC would "continue to monitor the situation closely."