Lee Chan-jin, head of the Financial Supervisory Service, publicly apologized for the single-stock leverage ETF (Exchange-Traded Fund) incident, which had been the biggest issue in the capital markets, stating that he "feels very sorry" during the National Audit on the FSS by the Political Affairs Committee of the National Assembly on the 19th. The head defended the prolonged inspection related to the non-allocation of Space X IPO housing subscriptions for Mirae Asset Securities, saying, "There were issues to look into in the process of professional investor registration."
Regarding rumors of a NASDAQ listing for Solidigm, the U.S. grand-subsidiary of SK Hynix, which has drawn high attention from investors, he stated, "We judge that it falls under duplicate listing (guideline application target)," and promised to take possible measures, such as conveying shareholders' concerns to the SK Hynix side.
"Should have stopped it even by lying down," Lee Chan-jin publicly apologizes for single-stock leverage ETF incident
On this day, at the National Audit on the FSS by the Political Affairs Committee of the Seoul Yeouido National Assembly, Lee Chan-jin (Director) repeatedly apologized for the single-stock leverage ETF incident while drawing a line against opposition committee members' claims of "specific individual responsibility."
Opposition committee members also pressured the head to resign by citing his experience as a member of the National Pension Fund Investment Committee and the current employment status of his son at Mirae Asset Global Investments.
Kim Jae-seop, a People Power Party lawmaker, asked the head, who had been a member of the National Pension Fund Investment Committee, "Is it common for the National Pension Service to postpone rebalancing right before the launch of single-stock leverage ETFs?" and pressed on the causal relationship between the measure to raise the target weight of domestic stocks by the National Pension Service and the launch of single-stock leverage ETFs.
According to visual materials presented by Kim (Rep.) on this day, two days after the announcement (on January 26 this year) that the National Pension Service would postpone rebalancing of its target weight for domestic stocks until the end of June, the Financial Services Commission announced the launch of single-stock leverage ETFs on January 28. Subsequently, single-stock leverage ETFs were listed on May 27, and the National Pension Service decided to raise the target weight from 14.9% to 20.8% on May 28, with the rebalancing postponement ending at the end of June.
Kim (Rep.) asked again, "As a member of the Financial Services Commission, is this situation not exceptional?" and "What would the past Lee Chan-jin say about this?" The head replied, "It is difficult for me to speak from a personal standpoint."
Regarding his statement in a press conference last June that he "should have stopped it even by lying down" about single-stock leverage ETFs, the head explained, "Saying so at the press conference on June 22 was also to sound an alarm for investors by sending a strong message in a situation where significant investor damage was anticipated." The head apologized, saying, "The policy had already been announced and finalized. It is a heavy burden. I feel very sorry."
Park Seong-hun (Rep.) of the same party criticized that the head may have granted "self-favoritism" in decision-making related to the launch of single-stock leverage ETFs (Exchange-Traded Funds), citing that the head's son is currently employed at Mirae Asset Global Investments. The head explained, "I am not a private interested party and have no job-related connection whatsoever," and stated that he had preemptively filed for recusal in advance to dispel misunderstandings related to sanctions on asset management companies.
It was also pointed out that Hwang Sun-oh, deputy head of the Financial Supervisory Service, did not voice opposition at a Cheong Wa Dae meeting on January 13 last year, despite warnings about single-stock leverage ETFs being included in past FSS research reports.
Choi Eun-seok, a People Power Party lawmaker, asked Deputy Head Hwang if he had voiced opposition at the meeting at the time, and Deputy Head Hwang replied, "I do not clearly remember if such remarks were made."
Choi (Rep.) criticized, saying, "Looking at the research report that the Financial Supervisory Service had been hiding, all serious side effects of single-stock leverage ETFs were anticipated," adding, "Lee Chan-jin (Director) lies claiming he did not read a report funded by FSS budget, the deputy head attended the meeting and made no remarks despite knowing the content of the report, and does not remember that former Cheong Wa Dae Jeong Chaek (Head) Kim Yong-beom said they would push for ETFs."
In response to Shin Dong-wook, a People Power Party lawmaker's question, "Do you have no intention of taking responsibility and resigning?" the head was reserved, saying, "It is a matter for the person with appointment authority to decide."
"Should have looked into professional investor registration process" in response to issues raised about high-intensity inspections of securities firms
The head explained that there were reasons behind the FSS's high-intensity inspection "abuse of power controversy." Regarding issues raised by the Mirae Asset Securities union related to the Space X inspection, he stated, "Some parts are being verified for factual accuracy, and some are exaggerated," adding, "However, the inspection will be completed by this Thursday (the 22nd)."
The head also specifically revealed why the inspection of Mirae Asset Securities had been prolonged. He said, "Originally, in the process of registering professional investors, [securities firms] should do it through work PCs or similar means, but [Mirae Asset Securities] proceeded via mobile without leaving records," adding, "This part caused significant delays and reached a situation where individual investigation was necessary." Regarding the FSS's abuse of power inspection controversy, he announced a policy to strictly manage it by strengthening employee training, among other measures.
On this day, the head also hinted at inspections and institutional improvements regarding the interest rate calculation system for margin loans and automatic loan services.
Park Hong-bae, a Democratic Party of Korea lawmaker, pointed out that "the new amount of margin loans by the top 10 securities firms in June this year was 67 trillion won, increasing nearly three times compared to the same month last year." He continued, "Margin loans are products that are just like swimming while touching the ground, similar to banks' deposit-secured loans," and pointed out, "Yet loan limits vary by firm, and securities firms charged about 10% interest in the first half of the year but lowered rates in the second half."
The head said, "There are parts where I empathize with the criticism," and promised to re-examine the loan interest rate calculation system. Additionally, regarding automatic loan services at some securities firms that automatically execute margin loans to prevent frozen unsettled accounts, he stated, "It has been confirmed that there are quite problematic aspects, so we were planning to inspect it anyway."
"Solidigm falls under duplicate listing... will convey concerns to SK Hynix"
Lee Chan-jin, head of the Financial Supervisory Service, clearly stated his position on issues not yet implemented, such as the duplicate listing controversy related to the U.S. NASDAQ listing of Solidigm, a grand-subsidiary of SK Hynix, and the shortening of stock settlement period to T+1 (trading day + 1 business day).
Regarding the controversy over Solidigm's U.S. NASDAQ listing, the head confirmed multiple times his position that "it is judged to fall under duplicate listing." Since a guideline prohibiting duplicate listings between parent and subsidiary companies has been in effect since August 3 last year, he considered that if Solidigm actually pushes for a NASDAQ listing, it would become subject to the guideline. If the principle of prohibiting duplicate listings guideline applies, new regulations must be complied with, such as imposing five major shareholder protection duties on the board of directors of SK Hynix (parent company).
The head also expressed his will to implement possible measures to the maximum extent, such as conveying shareholders' concerns to the SK Hynix side. However, he stated that a Financial Services Commission interpretation is needed to determine whether Solidigm's securities registration statement falls under FSS review.
Financial authorities have stipulated that cases where a domestic parent company lists its subsidiary overseas also fall under the target of the principle prohibiting duplicate listings. If a domestic company lists its subsidiary domestically, it undergoes duplicate listing review by the Korea Exchange, but since such review is not possible when listing on an overseas exchange, they have set a policy to inspect through the securities registration statement submitted by the parent company.
At the time of the guideline announcement, a financial authority official explained, "Even if a domestic corporation issues securities overseas, if there is a possibility that it will be repatriated domestically within one year, it must submit a securities registration statement to the Financial Supervisory Service," adding, "During the process of accepting the securities registration statement, [we will look into matters such as the five major shareholder loyalty duties]."
Regarding the shortening of stock settlement period, which President Lee Jae-myung also emphasized, Lee Chan-jin (Director) said, "When I went on IR (Investor Relations) trips overseas, many foreign institutional investors have expressed concerns about the transition to T+1," adding, "Currently, securities firms' computer systems are quite well organized, but we will discuss with policy authorities together so that it can be prepared smoothly, taking into account such concerns."
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