Financial authorities are once again considering additional measures for single-stock leverage products. Following increases in the basic deposit requirement and restrictions on trading units, they are now reviewing adjustments to leverage ratios, setting investment limits, and mandating simulated trading.
While the intention to stabilize the market is understandable, one question looms larger with each new measure: If these products are so risky and problematic, shouldn't their very existence be reconsidered?
The controversy surrounding single-stock leverage products was anticipated. These high-risk products aim to track double the price movement of specific stocks, offering high returns in a bull market but amplifying losses in a bear market. With significant capital flowing into leading domestic stocks like Samsung Electronics and SK Hynix, the demand for leverage only exacerbates market volatility.
However, the response from financial authorities has been a series of reactive measures. Initially, they raised the basic deposit requirement. Then, they expanded trading units. Now, they are even considering emergency powers to adjust leverage ratios. This marks the third supplementary measure in just a month, indicating that the authorities themselves recognize the product as a significant market risk.
A more pressing issue is the consistency of the regulatory framework. On one hand, authorities emphasize expanding retail investor participation in capital markets and diversifying financial products, while on the other, they continue to tighten trading conditions for specific products. This inconsistency can only lead to confusion among investors. If the product was inherently risky from the start, why was it allowed without sufficient scrutiny?
Particularly concerning is the idea of retroactively lowering leverage ratios. While the rationale is market stability, changing the product structure after investors have already signed up undermines the fundamental principles of predictability and trust in financial products.
Of course, it is also problematic if the government lacks any response measures during rapid market fluctuations. In extreme situations like financial crises or the COVID-19 pandemic, emergency actions are necessary. However, such emergency powers should remain exceptional. If regulations are added every time a specific product contributes to market instability, the market will ultimately operate under the assumption of government intervention.
A fundamental question must be asked: Are single-stock leverage products truly necessary for the development of the domestic capital market?
The authorities must now provide a clear direction. Should they maintain the product while continuously adding regulations, or should they decisively eliminate it if the potential for market disruption is high? Band-aid solutions like raising deposit requirements, limiting investment, and adjusting leverage ratios will not quell market uncertainty.
What financial authorities need to do is not manage the market under the pretext of overly protecting investors. If a product poses risks that could destabilize the entire market, its necessity must be reevaluated.
The consideration of a third set of measures indicates the seriousness of the issue. Therefore, it is time to ask: If a product requires this much intervention, does it even have a reason to exist? Financial authorities must provide a definitive answer on whether to preserve or eliminate leverage products. Concerns about accountability can wait until after market stability is achieved.
* This article has been translated by AI.
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