Lee Chan-jin (이찬진), head of South Korea's Financial Supervisory Service, voiced strong concern over overheating in single-stock leveraged exchange-traded funds (ETFs) tied to Samsung Electronics and SK Hynix. He said extreme turnover is concentrating gains on intermediaries such as brokerages rather than individual investors. He said he will review separate investor safety measures.

At a regular press briefing held on June 22 at the FSS headquarters in Yeouido, Seoul, Lee said the domestic stock market has seen a sharp surge in measures such as turnover. He said market instability and volatility have intensified significantly. He added that concentration of trading is widening, centred on semiconductor stocks.

Lee specifically pointed to overheated investing in single-stock leveraged ETFs tied to Samsung Electronics and SK Hynix. Single-stock leveraged ETFs are high-risk products that track twice a specific stock's daily return.

When they were introduced, the intent was to steer demand for overseas stock investment back to the domestic market in a period of high exchange rates, but they have recently been cited as a factor fueling concentration in semiconductor stocks and short-term trading overheating.

Lee said, "The extreme turnover of those products is resulting in only brokerages getting fat." He added, "I am concerned that the players have no real benefit while only the management and operating system makes profits."

He said turnover at times was close to 200 percent. He estimated that trading commissions brokerages could earn through this could amount to as much as 10 trillion won.

The FSS recently issued a consumer alert related to single-stock leveraged ETFs, but it believes investor fever is not easily cooling. Lee said, "Most investors are middle class and working people, and if stock market volatility comes, it could be a major shock to households." He added, "We are considering separate safety measures."

He also assessed that the policy effect of single-stock leveraged ETFs had significant side effects.

He said the introduction of the related products was prepared somewhat hastily during the period of high exchange rates. He said, "As a way to bring investment demand that was heading to Hong Kong back into the domestic market, it does not seem to have been very effective."

He added, "On the other hand, the side effects have become too big, and the government is also in a state of deep consideration."

Lee also took a critical stance on a case involving the failure to allocate SpaceX IPO shares. Lee said, "I don't understand," about Mirae Asset Securities not allocating even 1 share of SpaceX IPO stock. He said the circumstances surrounding the allocation were "absurd."

He said, "From the investor's standpoint, this is very inconvenient and dissatisfying." He added, "If they had not invested in the IPO subscription, they would have bought the stock on the first day of listing, and wasn't that money tied up?" The FSS plans to prepare measures for investor protection and to prevent recurrence based on the results of its inspection of Mirae Asset Securities.

Checks of asset managers will also be expanded. The FSS plans to begin an on-site inspection during the week of Korea Investment Management, which promoted that it would include SpaceX IPO shares in its own ETF.

Korea Investment Management highlighted that it could expect higher returns through including IPO shares rather than adding the stock after listing, but it ultimately could not hold IPO shares because of the failed allocation at Mirae Asset Securities.

Samsung Asset Management will also be checked. Samsung Asset Management included SpaceX in a passive ETF on the day of listing, and it is under controversy over whether it followed the index calculation methodology and whether there is a fairness issue versus other firms.

The FSS said that because the ETF is a passive product that must mechanically track a set underlying index, it plans to examine the inclusion process and whether the methodology was followed.