Korea's FSS chief says single-stock leveraged ETF review was sped up to meet listing date

Lee Chan-jin, governor of the Financial Supervisory Service (FSS), said on 19 October that the agency sped up its review of single-stock leveraged ETFs to meet their listing schedule. He was answering People Power Party lawmaker Park Dae-chul at the National Assembly Political Affairs Committee's audit of the FSS. [ 1 , 2 , 3 , 7 ]

Park said ETF listings normally go through two stages, a Korea Exchange preliminary review and an FSS review, but that for these products the FSS reviewed before the exchange's preliminary review had ended. Asked whether this was the first such case, Lee said that after checking, it seemed so. Asked why, Lee said the Financial Services Commission had announced the listing schedule as policy in mid-April and that there was a part where the review was sped up to meet it. Asked whether the FSS checked the exchange's preliminary review materials midway, Lee said that needed checking but that he understood there had been no particular problems. [ 1 , 7 , 9 ]

Park said ETFs take an average of 62 days to list and representative index-type ETFs 43 days, while the single-stock leveraged products took 29 days. He said a riskier product had been reviewed in a shorter period. According to Park, the 62-day average covered 81 ETFs listed this year up to 27 May and ran from preliminary review application to listing. Sixteen single-stock leveraged ETFs were listed on 27 May. [ 1 , 3 , 16 ]

Kim Jae-seop, a People Power Party lawmaker, asked whether the launch was behind the recent stock market volatility. Lee said he thought it was partly a cause, citing severe volatility in Samsung Electronics and SK Hynix shares. On the KOSPI's 41% fall from its peak as of 15 October, Lee said he felt very heavy-hearted and was sorry to the public. He explained his June remark that the products should have been blocked even by lying down as a strong message meant to alert investors to expected heavy losses. [ 9 , 16 ]

On who drove the products' introduction, Seoul Shinmun quoted Lee as saying it was decided through consultation between the government and the authorities and that it was hard to name a specific person. Lee also said the FSS had not formally raised problems during the review of the introduction and had not directly pointed out the volatility issue beforehand. CBS NoCut News said the audit did not explain why the schedule had been brought forward. Choi Eun-seok asked FSS Deputy Governor Hwang Seon-o about a January meeting chaired by Kim Yong-beom, then Blue House policy chief; Hwang said he could not recall whether opposition had been voiced. [ 7 , 14 , 16 , 19 ]

Park Sung-hoon, another People Power Party lawmaker, raised a conflict-of-interest charge over Lee's son working at Mirae Asset (미래에셋자산운용). Lee replied that he had no private interest or job relevance in the enforcement rules. [ 7 ]

People Power Party leader Jang Dong-hyuk wrote on Facebook on 19 October that Lee had admitted a hasty review and called for a special counsel. On 20 October, floor leader Jeong Jeom-sik said the party would pursue a special counsel investigation. [ 13 , 16 , 20 ]