South Korea’s top financial regulators apologized on July 29 after steep losses tied to single-stock leveraged exchange-traded funds (ETFs) sparked a broad market selloff, intensified scrutiny of the government’s oversight and fueled calls for tighter regulations.
Financial Services Commission Chairman Lee Eok-won acknowledged during a parliamentary hearing that authorities had failed to meet public expectations and accepted responsibility for the market disruption.
“I sincerely apologize for not living up to the public’s trust,” Lee told lawmakers.
Asked whether the collapse of single-stock leveraged ETFs reflected a regulatory failure by the Financial Services Commission and the Financial Supervisory Service, Lee said officials viewed the surge in market volatility with “the utmost seriousness.”
“As the agency ultimately responsible for financial markets, we take that responsibility very seriously,” he said. “We will move quickly to implement corrective measures and will not hesitate to introduce additional steps if necessary.”
Financial Supervisory Service Governor Lee Chan-jin also apologized, saying regulators were treating the issue with the utmost seriousness and would do everything possible to reduce market volatility.
The remarks came after South Korea’s benchmark Kospi index plunged nearly 6% to close at 5,663.24, extending a sharp market decline. Trading curbs, including sell-side sidecars and marketwide circuit breakers, were triggered for a second consecutive session on both the Kospi and the technology-heavy Kosdaq markets.
Lawmakers questioned whether the leveraged ETF products had been introduced at the direction of senior presidential officials. Lee declined to comment on internal policymaking, saying financial regulations are developed through consultations among multiple government agencies rather than at the direction of any single office.
He added that the Financial Services Commission drafted the proposal before coordinating it with other ministries.
Lee also said regulators are reviewing additional safeguards proposed by lawmakers, including raising minimum margin requirements, lowering leverage ratios for single-stock leveraged ETFs and restricting new purchases to professional investors.
He said increasing the required cash deposit to ₩30 million could significantly curb trading activity and added that regulators are prepared to tighten requirements further if market conditions deteriorate.
Lee also expressed support for a variable leverage framework that would allow leverage ratios to be adjusted based on market conditions, while noting that legal and investor-protection issues would need to be addressed during the legislative process.
Other measures under consideration include limiting the share of investors’ portfolios that can be allocated to leveraged products, staggering ETF rebalancing schedules and reducing trading volumes to help ease market volatility.
Separately, Lee Chan-jin addressed comments he made last month that he should have “laid down in front of the policy” to prevent the products from being introduced. He said the remark reflected his concern for investor protection during a period of heightened volatility and was not intended to suggest broader disagreement within the government.
Lee added that the Financial Supervisory Service had not formally opposed the launch of single-stock leveraged ETFs and said the policy had ultimately been finalized through consultations among the relevant authorities.
