Seoul: The chief of the country's financial watchdog said Monday that the newly introduced single-stock leveraged exchange-traded funds (ETFs) have been generating many side effects, and his agency is drawing up measures to protect investors. In a press conference, Lee Chan-jin, governor of the Financial Supervisory Service (FSS), expressed concern over the intense trading activity associated with these ETFs, particularly those with underlying assets in Samsung Electronics and SK hynix, which have shown extreme turnover since their introduction in late May.
According to Yonhap News Agency, the FSS chief highlighted his worry that investors may not realize meaningful gains, while management-and-operation entities continue to profit. Lee further explained that his agency is actively reviewing measures to mitigate potential adverse impacts on investors.
The underlying assets, Samsung Electronics and SK hynix, have experienced increased volatility driven by an artificial intelligence (AI)-driven rally. This has consequently led to amplified volatility for single-stock leveraged ETFs.
The FSS reported that the market capitalization of single-stock leveraged ETFs was 4.5 trillion won (US$2.95 billion) on May 27, when they first appeared on the local stock market. By June 12, their market value had more than doubled to 9.6 trillion won. Additionally, the daily turnover rate for these ETFs reached 122.5 percent, significantly higher than the 30.2 percent posted by other leveraged, inverse ETFs, as per FSS data.
The watchdog cautioned that the underlying assets could exhibit extreme volatility in the future, potentially leading to further amplified volatility for single-stock leveraged ETFs.