KOREA'S SINGLE-STOCK LEVERAGE ETF IS OVER 10 TRILLION WON, MAKING IT DIFFICULT TO TAKE EXIT MEASURES

IN AN INTERVIEW WITH KBS TV TODAY, KIM YONG FAN, CHIEF OF THE KOREAN PRESIDENTIAL POLICY OFFICE, STATED THAT THE GOVERNMENT WOULD LOOK INTO ADDITIONAL IMPROVEMENTS TO THE SINGLE STOCK LEVER ETF, WHICH HAD RECENTLY PROVOKED A DISPUTE OVER STOCK MARKET VOLATILITY, BUT THAT IT WOULD BE DIFFICULT TO TAKE EXIT MEASURES IN PRACTICE. THE CURRENT SIZE OF THE SINGLE STOCK LEVERAGE ETF, WHICH NOW EXCEEDS 10 TRILLION WON, AND WHERE INVESTORS ARE ALREADY INVOLVED IN TRANSACTIONS, AND WHEN FORCED OUT OF THE MARKET “WILL ITSELF HAVE A HUGE IMPACT ON THE MARKET”, IT IS NOT REALISTIC TO LEAVE THE MARKET. THIS PRODUCT WAS INTRODUCED AFTER FULL DISCUSSION, AND, IN ADDITION TO MEETING INVESTMENT NEEDS, HAS THE POLICY PURPOSE OF ATTRACTING CAPITAL FLOWS TO OVERSEAS MARKETS. KIM JUNFAN NOTED THAT THERE WERE STRUCTURAL RISKS TO THIS CATEGORY OF PRODUCTS THAT NEEDED TO BE FURTHER OPTIMIZED, IN PARTICULAR THE “DEVIOLATION RATE” MANAGEMENT MECHANISM BETWEEN ETF AND THE TARGET ASSET PRICE, AND THAT THE LEVERAGE OF ETF TO MAINTAIN THE TARGET MULTIPLIER COULD LEAD TO INCREASED PRESSURE ON SALES IN A SHORT PERIOD OF TIME BY CONCENTRATING ON TRANSACTIONS DURING RAPID MARKET FLUCTUATIONS. REGULATORS, ASSET MANAGEMENT COMPANIES AND SECURITIES FIRMS NEED TO FURTHER DISCUSS WAYS TO REDUCE THE IMPACT OF PRODUCTS ON THE MARKET DURING A GIVEN PERIOD, INCLUDING THE NEED TO LIMIT THE ADJUSTMENT TO 30 MINUTES, THE POSSIBILITY OF EXTENDING THE ADJUSTMENT TIME AND THE POSSIBILITY OF RISK MANAGEMENT THROUGH OTHER DERIVATIVES。