Lee Eogwon: "2x Leveraged ETFs for Samsung Electronics to Be Allowed... Investigative Authority Needed for FSS"

Lee Eogwon, Chairman of the Financial Services Commission, Regular Briefing
"3x Leverage Not Allowed... For Investor Protection"

Lee Eogwon, Chairman of the Financial Services Commission, announced on the 28th that the launch of leveraged exchange-traded funds (ETFs) with double leverage, based on single blue-chip stocks such as Samsung Electronics and SK Hynix, will be permitted. He also acknowledged the need to grant the Financial Supervisory Service (FSS) special judicial police (special investigation police) the authority to initiate investigations.

Lee Eokwon, Chairman of the Financial Services Commission, is briefing at the Government Seoul Office. Photo by Yonhap News

Double-Leveraged Single-Stock ETFs to Be Introduced: "Domestic Investment Instead of Overseas"

At a press briefing held at the Government Seoul Office that morning, Chairman Lee stated, "We are pushing to allow leveraged ETFs based on single domestic blue-chip stocks," adding, "On the 30th, we plan to swiftly announce the legislative notice for the relevant enforcement decrees and subordinate regulations."

The leverage will be capped at two times. Chairman Lee explained, "We will not allow three times leverage to protect investors," and continued, "In the United States, there are products that allow triple leverage, but these were created before 2020, and I understand that no new products since then have been allowed triple leverage."

The Commission is also working to create a foundation for the development of diverse ETFs. By extending the maturity of option-eligible products, the goal is to lay the groundwork for covered call and other ETFs so that products popular overseas can also be developed domestically. In addition, the Commission plans to prepare legislation to introduce active ETFs without index requirements.

Investor protection measures will also be strengthened. This is because high-risk products such as leveraged ETFs may expose investors to risk if the stock market overheats. Chairman Lee said, "It is not problematic to provide alternatives that offer choices to investors, especially given the large number of people investing overseas," but added, "We will implement measures such as mandatory pre-education for ETF investors and expanding the application of minimum deposit requirements to overseas leveraged ETFs to protect investors."

Lee Eokwon, Chairman of the Financial Services Commission, is briefing at the Government Seoul Office. Photo by Yonhap News

"FSS Special Investigation Police Need Authority to Initiate Investigations"

Chairman Lee stated that it is necessary to grant the FSS special investigation police the authority to initiate investigations. Currently, the FSS special investigation police can only investigate cases of unfair trading in capital markets if they are directed by a prosecutor. Chairman Lee said, "Circumstances have changed since the early days of the special investigation police, and there is now a recognized need to grant the authority to initiate investigations to enable a swift response to unfair trading in the capital markets," adding, "As a control mechanism for the FSS, we plan to design the system based on the Financial Services Commission's special investigation police, which operates under the oversight of an investigation review committee."

He also said, "Discussions are underway to introduce special investigation police in the area of illegal private lending, which is one of the crimes that directly affect people's livelihoods." He explained, "Illegal private lending is a crime that requires on-the-ground action, and it is difficult for the police to focus on this area, so there is a need to introduce special investigation police within the FSS, which already has a crime reporting system in place." He added, "The common position of the Financial Services Commission and the FSS is that it is not appropriate to assign special investigation police to areas outside of unfair trading in the capital markets and illegal private lending crimes that affect people's livelihoods."

"No Concentration of Control by Specific Shareholders at Virtual Asset Exchanges"

Regarding the ongoing discussion in political circles about restricting the shareholding ratio of major shareholders in virtual asset exchanges to 15-20%, Chairman Lee cautiously acknowledged the need for such regulation. He said, "We are seeking to create official exchanges with enhanced status and roles through a unified law that governs the entire ecosystem, including virtual asset businesses, users, and the market, by moving from a registration system to a licensing system." He added, "These exchanges will have a strong public infrastructure character, so if control is concentrated in specific shareholders, conflicts of interest could arise. Therefore, there is consensus forming around the need for ownership restrictions."

Chairman Lee avoided giving a direct answer regarding the approval of the Lucent Block over-the-counter (OTC) fractional investment exchange, which has recently come under scrutiny over fairness concerns. He said, "Since the Financial Services Commission's approval process is ongoing, it is not appropriate to comment at this time," and added, "A decision will be made at the regular meeting, and we will explain the results fairly and transparently." Previously, the Securities and Futures Commission under the Financial Services Commission selected the 'KDX Consortium' led by Korea Exchange (KRX) and the 'NXT Consortium' led by Nextrade (NXT) on January 7. The Financial Services Commission has stated that it will select up to two out of the three applicants for the OTC exchange business license, but since President Lee Jaemyung also mentioned the issue at a recent cabinet meeting, the market is watching closely for the possibility that all three may be selected.

Lee Eokwon, Chairman of the Financial Services Commission, is briefing at the Government Seoul Office. Photo by Yonhap News

Regarding the National Growth Fund to be launched in June, Chairman Lee said, "With stronger tax benefits such as greater income deductions and dividend tax reductions compared to existing products, the fund can deliver higher returns," adding, "In particular, we have put in place mechanisms for the government to absorb losses if they occur, and we plan to ensure robust management by selecting the top professional asset managers in the market."

When asked when the third case from the expanded joint response team for stock price manipulation, which recently grew to two teams, would be announced, he replied, "We have reinforced the team and will respond with a heightened sense of urgency, announcing the results as soon as they are available." Regarding the recent increase in margin loans due to the bullish stock market, known as 'debt investment,' he emphasized, "Stock investment inherently involves costs and should be done rationally within the investor's capacity to bear risk," but added, "Regulators are monitoring the loan ratios at securities companies and are managing the situation to ensure that lending does not become excessive."