Lee Chan-jin, the head of the Financial Supervisory Service (FSS), has sparked a heated debate with his criticism of single stock leveraged exchange-traded funds (ETFs). His statement that these products "only enrich brokerage firms" has left industry representatives visibly unsettled. Some in the brokerage sector are expressing frustration, suggesting that the FSS is shifting responsibility onto them after allowing the introduction of these products under the guise of diversifying offerings in line with global capital markets. The Financial Services Commission (FSC), the regulatory body overseeing the FSS, has also shown signs of displeasure, interpreting Lee's remark that they "should have blocked it even if it meant lying down" as a veiled criticism of their approval decision.
According to the Korea Exchange, as of the previous day, the total net asset value of 16 single stock leveraged and inverse ETFs based on Samsung Electronics and SK Hynix stood at 16.1955 trillion won. Since their launch on May 27, less than a month ago, these products have attracted 6.5961 trillion won in inflows. During a press conference, Lee expressed skepticism about the launch of single stock leveraged ETFs, stating, "There were doubts from the beginning," and reiterated that they are resulting in profits only for brokerage firms. He highlighted that the turnover rate once reached 200%, indicating that investors could be incurring substantial trading fees.
The trading volume has been significant. The KODEX SK Hynix single stock leveraged ETF, which has the largest net asset value, recorded an average trading value of 32.543 trillion won and an average trading volume of 10.984 million shares since its listing. Other major products, including the TIGER SK Hynix single stock leveraged ETF (18.456 trillion won) and the KODEX Samsung Electronics single stock leveraged ETF (20.815 trillion won), also reported high trading volumes. The average daily turnover rate for single stock leveraged ETFs, based on trading value since their listing, was 123.82%, with inverse products exceeding 300% to 800%.
However, the brokerage industry disagrees with the notion that high turnover rates are inherently problematic. They argue that the FSS has emphasized that single stock leveraged ETFs are designed for short-term investment rather than long-term holding, making active trading a natural outcome of the product's characteristics. Some industry insiders noted that a high turnover rate does not necessarily lead to increased market volatility. One representative stated, "If there are no unusual trading patterns, a high turnover rate can indicate ample liquidity," adding that it is difficult to conclude that active trading is a primary cause of increased volatility.
Brokerages are also pushing back against claims that their fee income is exaggerated. Since the COVID-19 pandemic, competition in retail trading has intensified, driving domestic stock trading fees down to nearly zero. Currently, major brokerages charge online trading fees for domestic stocks ranging from 0.003% to 0.015% during promotional events. Over the first 18 trading days since the launch of the 16 products, the cumulative trading volume is estimated to be around 170 trillion won. Applying the lowest fee rates in the industry to this trading volume suggests that brokerages could earn between 5 billion and 26 billion won in fees. While the trading volume is substantial, the industry argues that the claim that "only brokerages are profiting" is somewhat misleading. A brokerage representative remarked, "It is difficult to accept that responsibility is being shifted to the sellers for products that were approved by the regulatory authorities."
The FSC is also paying attention to the context of Lee's remarks. An FSC official stated, "Lee's comments are surprising," and questioned whether they were made in consultation with the relevant staff. Regarding Lee's mention of "measures to be taken," the FSC indicated that it is still in the early stages of discussing specific regulatory actions, given that less than a month has passed since the product launch.
* This article has been translated by AI.
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