The Financial Investment Association and major securities firms have decided to strengthen investor protection for single-stock leveraged exchange-traded funds (ETFs), which have seen a surge in demand.
On July 14, the Financial Investment Association held an emergency meeting in Yeouido, Seoul, attended by Chairman Hwang Seong-yeop and representatives from Daishin, Meritz, Mirae Asset, Samsung, Shinhan, Kiwoom, Hana, Korea Investment, KB, and NH Investment & Securities. They discussed the market situation regarding single-stock leveraged ETFs and measures to protect investors.
While acknowledging the benefits of expanding product diversity in single-stock leveraged ETFs, attendees agreed on the need to enhance investor protection measures due to the rapid increase in demand that exceeded initial expectations.
Considering the product's characteristics, which can lead to amplified short-term losses due to leverage and negative compounding effects during sideways markets, the group concluded that a higher level of investor protection is necessary.
As a result, the securities industry plans to strengthen tailored risk warnings and guidance based on investors' ages and portfolios, ensuring that investors can make informed decisions. They also agreed to enhance the investor protection framework, including raising the minimum deposit requirements to prevent excessive leveraged investments.
Additionally, they committed to promptly clarifying any false or exaggerated information regarding products and markets to provide accurate investment information and promote a healthy investment culture.
Participants also discussed the potential impact of rebalancing transactions of single-stock leveraged ETFs on the underlying asset market. However, it was noted that the overall trading volume, rather than the daily rebalancing transaction size, influences the market. According to the Capital Market Research Institute, the estimated trading volume required for daily rebalancing since the product's launch ranges from 700 billion to 2.1 trillion won.
Considering that rebalancing transactions tend to concentrate at closing prices, they also plan to enhance the market stabilization function of liquidity providers and distribute trading times to minimize the impact on the underlying asset market.
Chairman Hwang Seong-yeop stated, "Single-stock leveraged products can be a useful tool for expanding investor choice, but they also require the industry to play a significant role in protecting investors. I hope that each firm will strengthen its investor protection efforts and that a trustworthy market environment will be created through some institutional improvements."
* This article has been translated by AI.
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