The Democratic Party of Korea's 'Korea Premium K-Capital Market Special Committee' is considering reducing the leverage ratio of single-stock leveraged and inverse exchange-traded funds (ETFs) from '2x' to '1.5x'. This follows President Yoon Suk Yeol's order for additional measures related to single-stock leveraged products, indicating a comprehensive approach to addressing the issue. ▶Related article 2·20 page
Oh Ki-hyung, chairman of the K-Capital Market Special Committee, said in a phone call with Herald Economy on the 22nd, "There is an opinion that the leverage ratio (2x) itself can be reduced, so we are looking into it." He explained that they are considering reducing the leverage ratio of existing products from 2x to 1.5x, listening to market opinions and examining the feasibility at the committee level.
The committee was launched as a special committee within the ruling party after the inauguration of the Yoon Suk Yeol administration last year, aiming to achieve 'KOSPI 5000'. After achieving KOSPI 5000 in February last year, it changed its name to the current one. Since then, it has been leading major stock market policies of the government and ruling party, including normalizing the price-to-book ratio (PBR) and revitalizing KOSDAQ.
However, there are significant challenges to overcome for this plan to be implemented. Above all, a general meeting of beneficiaries must be held. Byeon Jae-ho, director of the Capital Market Division at the Financial Services Commission, recently stated that "reducing the leverage ratio from 2x to 1.5x goes against the original intention of introducing leveraged products and requires a 'general meeting of beneficiaries'. This is more difficult than a shareholders' meeting."
A general meeting of beneficiaries is a meeting where investors in the product gather, and asset management companies (collective investment business operators) who manage the fund can convene it. Trust companies that hold and manage fund assets or investors holding more than 5% of the total shares also have the right to request a convening.
Due to these practical limitations, the leverage ratio adjustment plan has been practically considered a difficult measure. However, with President Yoon's recent request for further review of measures, the situation seems to be changing. On July 21st, during a cabinet meeting, President Yoon mentioned the limitations of current measures and urged, "Take bold and swift countermeasures."
Kim Dae-jong, professor of business administration at Sejong University, said, "Lowering the leverage ratio of single-stock leveraged ETFs from 2x to 1.5x could be a more effective alternative than increasing margin requirements or strengthening investor education." He added, "Adjusting the leverage ratio to 1.5x can mitigate excessive loss risks and market volatility while preserving investment functionality."
Regarding the single-stock leveraged ETF leverage ratio adjustment plan, a financial authority official said, "We are not ruling out any options" and emphasized that discussions are ongoing in all directions.
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1.5 times? It would be better to release it sooner rather than later.
▶ Original source: https://news.nate.com/view/20260722n13903
