South Korea's Financial Services Commission exposed for not conducting stress tests on single-stock leveraged ETFs, only completing structural risk assessments

According to Korean media MT, prior to the launch of single-stock leveraged ETFs, the South Korea Financial Services Commission (FSC) conducted an internal review on product structure risks, but did not carry out stress tests on specific products, nor did it simulate the market impact potentially caused by significant declines in heavyweight stocks such as Samsung Electronics and SK Hynix. Internal review documents from the South Korea Financial Services Commission show that single-stock leveraged ETFs have higher volatility compared to leveraged products tracking market indices, carrying the risk of long-term losses due to "volatility decay," and may further amplify underlying stock price fluctuations during the rebalancing process. However, the relevant analysis mainly focused on the general structural risks of leveraged ETFs and did not assess the potential impact on related ETF products and market liquidity when individual stocks such as Samsung Electronics and SK Hynix experience extreme declines. This controversy has once again sparked attention in the South Korean market on risk management for high-leverage ETFs. As single-stock leveraged products gradually expand, whether regulators need to introduce stricter stress testing mechanisms has become the focus of market discussion.