Bank of Korea governor apologizes for insufficient leveraged ETF warnings
In short
Bank of Korea Governor Shin Hyun-song (신현송) apologized on October 12 for failing to give sufficient warnings about single-stock leveraged exchange-traded funds. He told a parliamentary audit that the bank had not fully understood market volatility and that its favorable June assessment of the products was inappropriate.
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Bank of Korea Governor Shin Hyun-song (신현송) apologized on October 12 for the central bank's failure to give sufficient warnings about single-stock leveraged exchange-traded funds. Speaking at a parliamentary audit at the bank in Seoul, he responded to a question about whether it had fulfilled its role during the products' introduction. He said the bank had not warned adequately and expressed regret to the public. [ 1 , 2 ]
Shin said he had discussed related issues at a press conference following the Monetary Policy Board's meeting in late May. However, he said the bank had not fully understood volatility in the domestic stock market, particularly in the memory semiconductor sector. CBS NoCut News reported that he said the bank had made general remarks about stock investment using debt, but agreed its warnings had been insufficient. [ 1 , 10 ]
The bank's June financial stability report had said the products appeared likely to help prevent domestic investment funds from moving overseas and increase inflows of foreign funds. Shin said that assessment was inappropriate given the circumstances. He explained that most drafting of the report took place in late May and early June. Asia Economy reported that a lawmaker said the products amplified stock-price volatility and caused serious losses for individual investors. Shin agreed with the lawmaker's call for advice that could reassure the public while maintaining an appropriate degree of tension with the government. [ 1 , 4 , 10 ]
Separate reports also scrutinized stock trading by employees in the bank's financial stability department. Yonhap reported on October 13 that their trading volume had increased 53-fold during the first half of the year. Kukmin Ilbo had also reported the 53-fold increase in its headline the previous evening. Those supplied reports offered no detailed figures or explanation for the increase. [ 13 , 14 ]
Why it matters
A lawmaker said the products amplified stock-price volatility and caused serious losses for retail investors. Shin acknowledged shortcomings in the central bank's warnings and assessment, agreeing that it should give advice that reassures the public even when it makes the government uncomfortable.
Key facts
- Shin apologized for insufficient warnings about single-stock leveraged ETFs at a parliamentary audit on October 12. [ 1 , 2 , 5 ]
- He said the bank had not fully understood volatility in the domestic stock market and memory semiconductor sector. [ 1 , 5 , 10 ]
- The bank's June financial stability report said the products could help prevent domestic investment funds from flowing overseas and attract foreign funds. [ 1 , 2 , 5 ]
- Shin said that assessment was inappropriate given the circumstances at the time. [ 1 , 2 , 5 ]
- A lawmaker said leveraged ETFs had amplified volatility and caused serious retail-investor losses. [ 4 ]
- Yonhap reported on October 13 that financial stability department employees' stock-trading volume increased 53-fold in the first half of the year. [ 14 ]
Confirmed by several sources
- Shin apologized for insufficient warnings about single-stock leveraged ETFs. [ 1 , 2 , 5 ]
- He said the bank had not fully understood domestic stock-market and memory semiconductor volatility. [ 1 , 5 , 10 ]
- He said the June financial stability report's favorable assessment was inappropriate. [ 1 , 2 , 5 ]
- Reports said stock trading by financial stability department employees increased 53-fold. [ 13 , 14 ]
Still unclear
- The supplied reports do not quantify the retail-investor losses attributed to leveraged ETFs. Asia Economy quotes a lawmaker describing serious losses but supplies no total.
- The reasons for the 53-fold increase in employees' stock trading are not explained. The relevant documents provide only a headline and short summary without underlying amounts or explanations.
What local media are saying
Timeline, local time
- On October 12, Yonhap reported Shin's apology during the parliamentary audit. [ 1 ]
- On October 12, Asia Economy reported parliamentary criticism of the bank's warnings and June report. [ 4 ]
- On October 12, Kukmin Ilbo published a headline reporting a 53-fold increase in financial stability employees' stock trading. [ 13 ]
- On October 13, Yonhap reported that financial stability employees' stock-trading volume had surged in the first half of the year. [ 14 ]