The Korean Congress will engage in a process of system change on leverage ETF, and the market’s expectation of more stringent constraints on single-stock leverage products is rising. The Special Commission on Korea's High-quality Capital Markets under the umbrella of the Democratic Party of Korea plans to convene a closed review meeting on 6 July to launch the second half of the capital market policy discussions in the 22 National Assembly.

According to UNSCOM sources, the Commission was investigating the current situation in the ETF market, examining, inter alia, the continued retention of the relevant products and the raising of the market access threshold. Further consultations with the financial regulatory authorities will follow.

The chain of custody has been transferred openly.

The President of the Korea Financial Supervisory Authority had previously made a public statement on Samsung Electronics, SK single-stock leverage ETF, recognizing the policy problems involved and the need for an investor protection mechanism. This is seen by the market as a clear signal of a shift in regulatory attitudes.

These products were launched at the end of last year and were intended to attract investors ' demand for overseas securities markets back to the Korean mainland in a high exchange rate environment. However, the rapid increase in the size of the product after its listing also raised concerns about increased volatility.

The President of the Korea Financial Supervisory Authority criticized the press conference last month that the high rate of change had more of the result of benefiting the voucher and operating system than ordinary investors. He also expressed his “deep concern” about this. This is the most direct criticism of leverage ETF by South Korean regulators to date.

The party's tendency is to look at the system from the top.

There is a basic consensus within the UDP on the need to tighten the ETF. The Special Committee ' s interlocutors expressed the view that if the leverage ETF weakens the credibility of the stock market, it affects the overall development of the capital market and will therefore review whether more complete regulation needs to be introduced or only partial repair.

The core concern within the party is that a single stock leverage product could magnify the concentration effect. The current high level of semiconductor plates, the continued flow of funds to Samsung electrons and SK Hercules, and the increased volatility of the superstition of the shares themselves are seen as further reinforcing this trend.

Follow-up or entry into the legislative agenda

The Special Commission was formerly established by the Li Yingming Government as a party specialized body to promote the “KOSPI 5000” goals. In February this year, after the Republic of Korea ' s composite equity index had broken 5,000 points, the Commission changed its name to its current name and placed a number of capital market reforms on its agenda.

In addition to leverage ETF, the agenda includes the restoration of net market rates, the activation of the KOSDAQ market, the improvement of stable currency regulation and the introduction of a code of due diligence for institutional investors.

At present, the Special Commission has not yet taken a decision on specific regulatory options for leveraging ETF. From internal investigations to formal legislation, multiple processes are still required, and the cooperation of financial regulatory authorities will affect the pace of progress. However, the recent intensive statements by Congress and the regulatory community have clearly pushed up the expectations of the market to tighten on the products concerned.