Korea Mulls Steps to Rein In Leveraged Samsung, SK Hynix ETFs - Bloomberg.com
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South Korea's financial watchdog, the Financial Supervisory Service (FSS), is now actively mulling strict measures to rein in highly speculative single-stock leveraged Exchange-Traded Funds (ETFs) tied to tech giants Samsung Electronics and SK Hynix. FSS Governor Lee Chan-jin openly voiced his 'regret' over the hurried approval of these products, comparing their operation to 'gambling' that disproportionately benefits brokerage firms while exposing retail investors to significant risk. Launched just last month, these ETFs have exploded in popularity, pushing the regulator to consider intervention to cool down an overheated market. The rapid surge in these leveraged ETFs has become a major headache for South Korean authorities, especially since their market capitalization more than doubled to 9.6 trillion won in a mere 12 trading days following their late-May debut. Driving this frenzy are legions of retail investors, who now constitute a staggering 92% of participants in these high-risk products, fueling a record 60 trillion won in overall margin investment by May's end. Originally intended to keep domestic capital from flowing to similar overseas products and stabilize the Korean Won, these ETFs are ironically amplifying market volatility in Samsung and SK Hynix – stocks that already command over half of the benchmark KOSPI Index. With FSS Governor Lee emphasizing that the 'side effects have proven far too significant,' the regulator is now closely monitoring the situation and collaborating with the Korea Exchange (KRX) on potential risk management solutions. Expected measures could range from tightening product approval standards and imposing limits on trading or leverage, to enhancing investor suitability requirements. The outcome will not only impact the future of leveraged investing in South Korea but also test the authorities' ability to balance market innovation with crucial investor protection in a rapidly evolving, AI-driven memory supercycle.