Lee Yongwoo: "Leverage ETFs Undermine Stock Market Reform Momentum... Predictable Markets Are Essential" [Commercial Act Amendment 1 Year] ①

Interview with Lee Yongwoo, Director of The Korea Economy Plus Institute and Initial Sponsor of the Commercial Act Amendment

"Revising the Commercial Act Is the First Step Toward Transforming Corporate Decision-Making Culture"

"Restoring Tru

Editor's Note
With the implementation of the Commercial Act amendment focusing on strengthening shareholder rights a year ago, the Korean capital market took its first step toward resolving the "Korea Discount" (the undervaluation of the Korean stock market). Over the past year, starting with the expansion of directors' fiduciary duties, there have been a series of system reforms aimed at enhancing shareholder rights and improving corporate governance. However, there remain numerous challenges to increase the effectiveness of the system. To mark the first anniversary of the amended Commercial Act coming into effect, The Asia Business Daily is launching a four-part series that examines the impact of the amendments on the capital market, based on surveys of experts from the financial investment sector, academia, industry, and legal circles, as well as domestic and overseas interviews, and explores the tasks ahead for ushering in an era of "Korea Premium."

"The next phase of the Commercial Act revision is to strengthen disclosure."

Lee Yongu, CEO of the Economic Plus Institute and the original sponsor of the Commercial Act revision (and former lawmaker of the Democratic Party of Korea), cited "strengthened disclosure" and "restoring market trust" as the most urgent follow-up tasks ahead of the first anniversary of the revised Commercial Act’s enforcement on the 22nd. He stressed the urgent need to create a market environment where investors can be sufficiently informed and make their own decisions. However, he also raised strong concerns that following the introduction of single-stock leverage products (ETF·ETN) focused on Samsung Electronics and SK hynix (nicknamed "SamjeonNix"), market volatility has surged sharply, undermining the momentum for capital market reform.

In a recent interview with The Asia Business Daily in Yeouido, Lee stated, "If the revision of the Commercial Act is the first step toward changing the corporate decision-making culture, then the key instrument to building investor trust in companies is disclosure." Lee, who was the first to sponsor an amendment to the Commercial Act to enhance directors' fiduciary duties to shareholders in the 21st National Assembly, is an economic expert who previously served as Chief Investment Officer at Korea Investment Trust Management and as the founding co-CEO of KakaoBank, before becoming a lawmaker.

Lee Yongu, CEO of the Economic Plus Institute, is being interviewed by The Asia Business Daily on the 9th at the Economic Plus Institute office in Yeouido, Seoul. Photo by Jinhyung Kang

"Sudden Surge in Market Volatility" — Criticizing the Launch of Leverage Products

First, Lee cited the significant strengthening of shareholder rights—making it harder for companies to infringe on the rights of ordinary shareholders—as the most meaningful change during the past year since the revised Commercial Act was enforced. He also positively evaluated the strong rise of the KOSPI, which had hovered around the 3,000-point level, supported by improving corporate earnings centered on semiconductors. However, he expressed deep concern about the recent abrupt shift in market sentiment, diagnosing that the drive for capital market reform hit a “wrong move” at some point, resulting in a sharp increase in market volatility.

When asked what that "wrong move" was, Lee replied, "Why was the single-stock leveraged Exchange-Traded Fund (ETF) suddenly approved?" He said, "I don't understand the reasoning behind the approval," and added, "Given how excessively volatile the market has become, I wonder if investors are even willing to approach it anymore. A good market should be predictable." He further said, "Leverage is a product suitable for professional investors. The market should not be led into speculation by amplifying volatility." He criticized financial regulators' rationale (approval justified for global consistency), saying, "Talking about global consistency as the reason for approval shows a lack of understanding of the real market."

In particular, Lee strongly criticized the financial authorities' approval process: "Why is the Financial Services Commission talking about exchange rates? What is the core mission of the Financial Supervisory Service?" He continued, "The governor of the FSS shouldn’t be saying in hindsight, 'We should have done everything possible to block it, even if it meant lying down in the street.' At the time of permitting leveraged ETFs, the real core issue should have been how it would affect consumer protection, not exchange rates." This interview took place before relevant ministries released additional measures centered on raising minimum deposit requirements for leverage products on the 16th. At the time, Lee had voiced doubts about the effectiveness of such measures, stating, "Even if they announce a plan, it will likely only amount to tightening investment conditions and raising deposit thresholds."

Lee Yong-woo, CEO of The Asia Economy Plus Research Institute, is being interviewed by The Asia Business Daily on the 9th at The Asia Economy Plus Research Institute office in Yeouido, Seoul. Photo by Kang Jin-hyung

"Corporate Governance Is Not That Difficult" — Emphasizing Market Trust

In this interview, Lee repeatedly emphasized the importance of market trust, noting that the next phase of the Commercial Act revision must be focused on disclosure for this very reason. Defining disclosure as a "promise" that builds trust between investors and companies, he said, "Corporate governance isn't that difficult. What matters is how accurately information is provided to investors." He particularly highlighted the need for disclosure to go beyond a mere formality, instead focusing on providing information that serves as a basis for investment decisions. He said, "Administrative authorities should pay utmost attention to disclosure. As long as disclosure is done right, investors can make sufficient judgments. If a company fails to fulfill disclosure obligations, it must explain why to investors and gain their understanding. Without such explanations, market trust will inevitably collapse."

Lee also pointed out shortcomings in the subsequent refinement of related laws and regulations following the amendment. "The Commercial Act functions like a constitution among economic laws. When it changes, all relevant ministries should jointly examine what impact it has on other laws and deliberate together," he said, expressing regret that such cooperation is lacking. Specifically, he mentioned the urgent need for amendments to the Capital Markets Act, adjustments to exchange regulations, and the introduction of the discovery (evidence disclosure) system by the Ministry of Justice.

Lee also argued that the Commercial Act revision is not a regulation targeting large business groups (chaebols). "The fiduciary duty of directors is not about constraining chaebols, but about clarifying authority and responsibility. Being on a board of directors means accepting the matching level of responsibility," he explained. Citing Supreme Court precedents that acknowledged conflicts of interest in decisions about the remuneration of the largest shareholder, he said, "As the Commercial Act changes, corporate decision-making is gradually evolving. The impact of the revision will gradually become apparent as companies and investors change their behavior."

Beyond tackling the Korea Discount, Lee mentioned "sustainability of corporate profits" as a prerequisite for ushering in the era of Korea Premium. He referenced how Samsung Electronics' stock price fell after announcing second-quarter operating profit, stating, "Everyone knows that the memory semiconductor industry is strong. Everyone knows it will be favorable next year, too. However, what really matters in the market is what comes next," emphasizing, "The critical factor is how sustainable corporate profits are."

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