President Lee Orders Swift Countermeasures on Samsung Electronics and SK hynix Leveraged ETFs

[Financial News] President Lee Jae Myung on the 15th ordered the Financial Supervisory Service and the Korea Exchange to prepare countermeasures quickly, saying, "Make sure to come up with supplementary measures as soon as possible," in response to controversy over single-stock leveraged exchange-traded funds (ETFs) tied to Samsung Electronics and SK hynix. The move came as concerns grew that the products could increase market volatility by concentrating investor funds and trading in the two stocks after their launch.
At the Yeongbin Hall of Cheong Wa Dae, Lee chaired work report sessions for the Ministry of Economy and Finance, the Ministry of Data and Statistics, the Financial Services Commission, and the Ministry of Planning and Budget. Addressing Lee Chan-jin, chairman of the Financial Supervisory Service, he said, "You seem to be taking quite a beating lately because of the Samsung and Hynix ETFs," and asked for a response. Lee replied, "As the market overseer, we do have responsibility, and we will gladly accept it."
Lee then asked Eunbo Jeong, chairman of the Korea Exchange, "It's noisy here too because of ETFs, isn't it?" After Jeong answered in the affirmative, Lee urged the authorities to prepare swift supplementary measures. He added, "Restoring and advancing the capital market is an important task, so please keep a close eye on it."
The controversial products are ETFs designed to track twice the daily rise or fall of individual stocks such as Samsung Electronics and SK hynix. While they expand investors' options, critics say that if trading becomes concentrated in a few large-cap stocks, it could again amplify volatility in both spot prices and the broader index.
The related products were first launched in South Korea on May 27. As expectations grew for the AI semiconductor sector, retail money poured in quickly, and the net assets of the two leveraged ETFs swelled to about 15 trillion won. CLSA, a foreign brokerage, analyzed that the trading value share of Samsung Electronics and SK hynix, including leveraged ETFs, rose to as much as 73% of the entire domestic stock market on the 8th.
Kim Yong-beom, the presidential policy chief, also said at a market situation review meeting on the 10th involving the Ministry of Economy and Finance, the Financial Services Commission, the Bank of Korea, and the Financial Supervisory Service that the government was closely examining the product's operation and its impact on the market.
The opposition also raised questions about responsibility for the introduction of the products. People Power Party leader Jang Dong-hyuk wrote on social media on the 7th about the sell-side circuit breaker triggered that day, saying, "The biggest cause is the single-stock leveraged ETF." He added, "If you really want to audit this, you should start with Cheong Wa Dae, which gave the order. Kim Yong-beom could not have done it alone, so Lee Jae Myung should be the first target of the audit."
Lee also called for faster progress on broader reforms to the capital market system. He said, "Real estate still accounts for too large a share of asset allocation. That's primitive," adding, "Resources that could be used are tied up in real estate, leading to irrational outcomes in resource allocation." On the so-called "stock-price suppression prevention law," he asked, "Isn't legislation stalled and delayed?" and instructed officials to secure cooperation somehow and move faster. He also told them to review why South Korea failed to join the Morgan Stanley Capital International (MSCI) Developed Markets Index.
He also stressed the need to improve systems so that vulnerable debtors can make a fresh start. Lee said, "Our country is too strict when it comes to forgiving debt," and explained that debtors who cannot repay should be able to go through bankruptcy and discharge procedures before returning to economic activity. To arguments about moral hazard, he said, "Even so, we must do what is necessary," and added, "Delinquent and long-term delinquent debtors who cannot repay should be resolved quickly." He continued, "We must not allow people to die because of debt they cannot repay, or be cut off from society and unable to work, causing losses for the entire community," and urged the Financial Services Commission to prepare bold measures and the necessary institutional framework.
 They also discussed ways to encourage reporting of corruption, including fraudulent receipt of state subsidies. Lee said, "It is not a bad idea to make a living by uncovering and reporting corruption," and stressed that people should not be disadvantaged in the reward process simply because they reported professionally.
He also called for stronger prevention of sexual misconduct in the public sector. Lee warned, "Drinking and having fun is fine, but don't seat young women or men next to you, or do things like that. It always leads to trouble," adding, "Young employees of the opposite sex are not objects to be toyed with. That attitude and mindset itself is an insult to human dignity."
Meanwhile, as he began the second work report since the government took office, Lee said, "The remaining three years and 11 months are even more important." He added, "We need to prepare well for long-term policy implementation in line with the national policy goals, and we also need to correct the problems that already exist within our system," urging officials to ensure that both reform and innovation move forward successfully.

west@fnnews.com Sung Seok-woo Reporter