Lee Chanjin: "SpaceX IPO Subscription Failure Is an Incomprehensible Situation"

"Asset Managers That Announced Pre-Inclusion Also to Be Inspected"

"Inspection Results to Be Shared and Supplementary Measures to Be Prepared"

"Single-Stock Leveraged Products Only Benefit Securities Firms"

Lee Chanjin, Governor of the Financial Supervisory Service (FSS), strongly criticized Mirae Asset Securities regarding the allocation failure of SpaceX’s IPO shares, calling it an “incomprehensible situation.” The FSS is currently reviewing how Mirae Asset Securities failed to secure the shares and whether proper investor protection procedures were followed. Governor Lee also pointed out that the turnover rate for single-stock leveraged ETFs focused on Samsung Electronics and SK hynix is approaching 200%, stating, “Only securities firms are benefiting.”

"Zero Allocation of SpaceX IPO Shares Is Incomprehensible… Supplementary Measures to Be Prepared"

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At a regular press briefing held on June 22 at the FSS’s main auditorium in Yeouido, Seoul, Governor Lee expressed his bewilderment over the recent controversy surrounding Mirae Asset Securities’ zero allocation of SpaceX IPO shares, stating, “I still can’t understand how no IPO shares were allocated.” He added, “Since there are issues that have caused investor dissatisfaction, we will conduct an inspection of Mirae Asset Securities to prevent recurrence and share the results. Based on the findings, we will also establish supplementary measures.”

Currently, the FSS is focusing on investor protection as it investigates the entire process of the failed IPO share allocation. Mirae Asset Securities had expected to acquire 2,314,815 shares of SpaceX Class A common stock, but in the final allocation process on June 12, lead underwriter Goldman Sachs completely eliminated the Korean investors’ allocation. Governor Lee stated, “We are reviewing how investor protection procedures were followed during the registration process for individual and corporate professional investors, and why the approximately 2.3 million shares registered with the U.S. Securities and Exchange Commission (SEC) were not allocated.” He added, “With around 4,000 registered investors, it may take a significant amount of time to verify all details, so the inspection period could be extended.”

The FSS is also launching an investigation into asset management companies that had announced plans to include SpaceX in their ETFs. Korea Investment Management became the first domestic asset manager to announce its participation in the SpaceX IPO and its plan to include IPO shares in its ETF, but this was scrapped due to the allocation failure. Mirae Asset Global Investments also attempted to include SpaceX in its ETF on the listing day but later revised its plan. The FSS plans to conduct an on-site inspection at one asset management firm on June 24.

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"Single-Stock Leveraged Products Like Samsung and Hynix Only Benefit Securities Firms"

Governor Lee criticized the fact that only securities firms are profiting from single-stock leveraged ETFs focused on Samsung Electronics and SK hynix. “Based on a turnover rate of 130% for single-stock leveraged ETFs, trading commissions are estimated to reach at least 5 trillion won and possibly exceed 10 trillion won,” he said. “In reality, market participants gain little benefit, while only the system that opens and operates the market is profiting, which is concerning.”

He also expressed concern over the high turnover rates. “Most single-stock leveraged ETF holders are individual investors, and during consecutive market downturns, returns can fall as low as -37%, posing significant risks. Even the lowest turnover rate is in the 130% range, and it can rise to as high as 200%. This means individual investors are essentially spending the entire day devoted to investing,” he noted.

The FSS plans to continue monitoring this concentration phenomenon. Governor Lee stated, “Although trading concentration and margin investing via single-stock leveraged ETFs are increasing, the proportion of margin buying is actually decreasing due to the sharp rise in market capitalization. We will pay close attention to avoid being misled by statistical illusions.”

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Regarding the KOSDAQ market, Governor Lee strongly criticized its weakened capital-raising function. “The KOSDAQ market’s diminished role in capital raising and its decline into merely a trading market is cause for reflection,” he said. “The government’s ‘money move’ policy aims to activate capital-raising functions, create unicorns, and share the results, but the reality is that companies only seek to exit through KOSDAQ listings.”

Journalists’ Front-Running Easily Detected… MBK Disciplinary Review Scheduled for Early Next Month

Regarding the recent journalist front-running case uncovered by the FSS’s special judicial police, Governor Lee urged caution among journalists. “We are investigating journalist front-running using artificial intelligence (AI), making detection easy,” he said. “Since these actions are quickly exposed, I hope journalists refrain from front-running.”

On the subject of the newly revised Stewardship Code for the first time in 10 years, Governor Lee stated that the FSS is the only entity capable of conducting compliance reviews. “The Korea ESG Standards Institute claims to be checking Stewardship Code compliance, but they lack the necessary infrastructure and personnel, and there is a considerable risk of conflicts of interest,” he said. “From the perspective of capital market transparency, I believe the FSS should be responsible for compliance reviews.”

The FSS has also begun inspections related to the default of Joongang Group, with plans to escalate to a formal examination if necessary. Investor complaints have been filed, alleging that securities firms led a bond issuance for Joongang Group despite knowing its poor financial condition, and issued the bonds with high ratings. Governor Lee explained, “From the investors’ perspective, it is unjust that securities firms continued to issue and sell bonds right up to the brink of default. We will verify how the bonds were issued and share the findings in due course.”

The disciplinary process for MBK Partners will take place early next month. The FSS had previously notified MBK Partners, which is suspected of unsound business practices and internal control violations in connection with the Homeplus case, of a preliminary heavy sanction, but a final decision has not yet been made. Governor Lee said, “We have determined that a further delay in judgment is not possible. While I cannot say whether a final decision will be made at the disciplinary review, the FSS’s position will be presented.”

This content was produced with the assistance of AI translation services.