As controversy grows over single-stock leveraged exchange-traded funds (ETFs) linked to Samsung Electronics and SK Hynix, the heads of the economic and financial authorities said they accept responsibility for the product’s introduction and the follow-up response process and will prepare additional measures.

Deputy Prime Minister Koo Yun-cheol (구윤철), who also serves as minister of the Ministry of Finance and Economy, told a work report to the National Assembly’s Finance and Economy Planning Committee on July 29 that he was sorry for shortcomings in thoroughly managing matters when the product was launched.

Koo said the purpose at the time of introducing single-stock leveraged ETFs was to shift investment demand that was flowing into high-risk overseas products back to the domestic market and reduce related risks. He said unexpected effects emerged after launch, and the government should quickly supplement the system.

He said the authorities first raised the basic deposit to 30 million won and introduced a system requiring payment in cash. He said additional measures will be prepared if necessary. He also said recent stock market volatility is difficult to view as a problem unique to leveraged ETFs, but the government will pursue steps needed to normalise the market.

Financial authorities also acknowledged that single-stock leveraged ETFs were one of the factors that increased market volatility.

Financial Services Commission Chairman Lee Eok-won (이억원) said in a work report to the National Assembly’s Political Affairs Committee on the day that single-stock leveraged products also had aspects that expanded market volatility through rebalancing processes and other mechanisms.

He said the cause of the recent sharp stock market drop should not be limited to single-stock leveraged ETFs alone. He said uncertainty over the sustainability of artificial intelligence (AI) investment, catch-up by Chinese semiconductor companies, and the structure of the domestic stock market concentrated in Samsung Electronics and SK Hynix also had an effect.

Lee said the authorities checked the market impact after the product launch, gathered opinions from related ministries and industry experts, and announced supplementary measures on July 16. He said investor protection devices will be further strengthened.

He also said he takes seriously criticism that the product launch and approval process were a "human error" by financial authorities.

Lee said he views very seriously the part where market volatility ultimately increased. He said financial authorities, as the final party responsible for the financial market, are taking responsibility seriously.

Financial Supervisory Service Governor Lee Chan-jin (이찬진) also said he will make every effort to minimise market volatility.

Lee said his earlier remark that the launch of single-stock leveraged ETFs "should have been stopped even by lying down" was a statement made from the perspective of investor protection.

He said single-stock leveraged ETFs are not typical index-tracking products but products close to individual stocks that have no risk diversification effect. He said he stressed the need for investor protection in a situation where volatility in the underlying assets was high.

On claims that the product was launched due to pressure from the presidential office to boost the stock market, the FSC chairman drew a line, saying there were no procedural problems. He said safeguards were 마련 by providing guidance on the negative compounding effect and investment risks of high-risk products and adding advanced training to existing education.

On July 16, financial authorities announced supplementary measures to raise the basic deposit for single-stock leveraged ETFs to 30 million won in cash and strengthen investor education and market management devices.

Going forward, they plan to check the effects of existing measures, trading trends and the scale of investor losses to determine whether additional regulation is needed.