Korean financial chiefs apologise at audit over single-stock leveraged ETF investor losses

Lee Eog-weon, chairman of the Financial Services Commission, and Lee Chan-jin, governor of the Financial Supervisory Service, apologised again on 22 October over the single-stock leveraged exchange-traded fund episode, Yonhap and Newsis reported. They spoke at the National Assembly Political Affairs Committee's general audit of the commission, the supervisor and other bodies, after People Power Party lawmaker Kim Jae-seop cited losses to individual investors and asked for an apology. [ 1 , 4 ]

Lee Eog-weon said he felt a heavy heart over the results that followed despite the policy needs and purpose behind the introduction, and said the authorities would pay more careful and precise attention to investor protection and market stability. Lee Chan-jin said he accepted the lawmaker's points humbly, felt a heavy heart and was sorry to the public. He said he would reflect on the supervisor's role and responsibility for investor protection. [ 1 , 4 ]

According to figures the Financial Supervisory Service gave committee members the previous day, compiled from 10 comprehensive financial investment firms, individual investors lost a total of 6.313 trillion won between the 27 May launch of single-stock leveraged exchange-traded products and 14 August. Newsis reported that Kim said the losses exceeded 6.3 trillion won. It added that he pointed to large losses among investors in their 40s and 50s, and said the products launched with a basic deposit of 10 million won and one hour of prior education. He called investor safeguards insufficient and said that where someone made the decision, someone should take responsibility. [ 1 , 4 ]

In a separate exchange at the same audit, Lee Chan-jin said the supervisor would look at compensation for individual investors in the sharp price gap of an SK Hynix single-stock leveraged ETF run by Korea Investment Trust Management (한국投資信託運用). Newsis and Dong-A Ilbo reported that on 8 June SK Hynix shares closed down 7.68%, while the ACE SK Hynix single-stock leveraged ETF closed up 49.7% at 30,000 won. The outlets noted that such products track twice the underlying stock's return, so a fall of about 7% would normally mean a fall of about 15%. [ 2 , 3 ]

People Power Party lawmaker Park Dae-chul said the gap had at one point exceeded 85%. He said large institutional buy orders piled up in the closing auction before the market close and individuals who bought then lost money. He said institutional losses were made good through a correction of erroneous trades, while individuals took losses of more than 40% the next day. Lee Chan-jin said the regulator was checking whether institutions, which compensate each other for losses, were being treated differently from individuals. He said individual losses came to 12 million won in total on 1,081 ETF shares and that investigation results were under review. [ 2 , 3 ]