The investment industry plans to spread rebalancing trades and reduce trading volumes by liquidity providers (LPs) to cut the market impact of single-stock leveraged exchange-traded funds (ETFs) tied to Samsung Electronics and SK Hynix.

The Korea Financial Investment Association said on Wednesday it held an emergency meeting on Tuesday at its headquarters in Yeouido, Seoul, attended by heads of asset managers running single-stock leveraged products and brokerage executives in charge of LP operations.

The meeting was attended by eight heads of asset managers, including KB, Mirae Asset, Samsung, Shinhan, Kiwoom, Hana, Korea Investment and Hanwha, and eight brokerage executives responsible for LP operations. Participants reviewed recent stock market volatility and investor losses and discussed industry-wide measures to stabilise the market.

The industry assessed that single-stock leveraged products have channelled investment demand that had been headed overseas into the domestic regulated market. It also said volatility has increased since their introduction, centred on semiconductor stocks, and retail trading has concentrated in some products.

Asset managers therefore decided to spread rebalancing trades that had been concentrated near the close to intraday and after-hours trading to reduce their impact on underlying assets.

Asset managers and brokerages will also pursue a joint response to reduce LP trading volumes. They plan to closely manage the divergence rate, the gap between the market price and net asset value, to reduce sharp price swings and harm to investors.

The industry will also strengthen risk disclosures and investor guidance. From Thursday, the basic deposit requirement for single-stock leveraged ETFs will be raised to 30 million won in cash, and the industry plans to support the early settlement of government measures such as strengthened investor education.

The association and the industry decided to continuously check the trading scale of retail investors, market volatility and the effects of investor protection measures. They will also discuss additional responses depending on market conditions.

Asset management chiefs who attended the meeting stressed that single-stock leveraged products come with high volatility and loss risk and are not suitable for ordinary retail investors who do not sufficiently understand the product structure and risks.

Hwang Seong-yeop (황성엽), chairman of the Korea Financial Investment Association, said the industry also recognises the recent market situation as very serious. He said it will work with the government on market stability and investor protection, including spreading rebalancing trades and managing LP trading volumes.