[Editorial] Asset Manager's Warning... Authorities Must Recognize the Seriousness of 'Leverage'

Bae Jae-kyu, CEO of Korea Investment Management, who operates the 'ACE Samsung Electronics Single Stock Leverage ETF' and the 'ACE SK Hynix Single Stock Leverage ETF', urged on July 20, "No one could have predicted that volatility would become this severe. I hope investors will stop investing even now." In effect, he is advising against buying his own company’s products. Such a statement underscores the severity of the situation. As the chief executive widely known as the "Father of Korea ETFs," this unusual admission should not be dismissed as mere advice to retail investors. It must be understood as a warning to the authorities about the seriousness of the issue and a call for additional countermeasures.

On July 16, the Financial Services Commission announced that the minimum deposit requirement for single stock leverage ETFs would be raised from 10 million won to 30 million won, and the minimum purchase unit would be increased from 1 share to 20 shares. However, contrary to the expectations of Kim Yongbeom, the Blue House policy chief, who expressed confidence that "once the supplementary measures are in place, most of the problems and side effects previously pointed out will be largely resolved," the domestic stock market is moving in a different direction. On July 20, the first trading day after the new measures, the total transaction amount still exceeded 12 trillion won, and sell-sidecars (temporary halt of program sell orders) were triggered in both the KOSPI and KOSDAQ markets. The KOSPI index dropped 4% from the previous trading day, barely maintaining the 6,500 mark.

The response from foreign media has also been critical. Reuters reported on July 19 (local time) that "leverage investing has turned the stock market into a gambling den." Bloomberg pointed out, "Although the financial authorities have announced several measures to address the sudden volatility, these do not fundamentally resolve the root causes. This is unfavorable news for the ruling party of President Lee Jaemyung, who campaigned on the promise of supporting ordinary citizens by nurturing the domestic stock market."

Given this situation, Democratic Party lawmakers from the National Assembly’s Political Affairs Committee held a closed party-government consultative meeting with the Financial Services Commission and the Financial Supervisory Service on July 20. As complaints and backlash regarding single stock leverage products continued even after the supplementary measures, ruling party legislators requested, "Please come up with additional countermeasures if necessary." This scenario was anticipated from the earliest days of the product’s launch. Launching such products without rigorous review, adequate investor education, or proper disclosure of risks is inherently dangerous. The authorities need to consider all possible measures, including delisting these products.

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