[Edaily Kwon Oh Seok PARK MIN Reporter] It has been confirmed that approximately one in nine executives and employees at securities firms—who are on the front lines of the domestic stock market—have invested in single-stock leveraged exchange-traded funds (ETFs). Critics point out that even securities firm executives and employees, who are closely involved with the stock market, have been exposed to the sharp price fluctuations of these high-risk products. Analysts estimate that if they had held onto these positions through the recent sharp market decline, they would have incurred losses totaling more than 70 billion won (approximately 16.55 million won per person).

◇75.9 Billion Won Evaporated Between End of 2nd Quarter and End of 3rd Quarter
According to an E-Daily analysis of the “Status of Single-Stock Leveraged ETF Holdings by Securities Firm Employees” report—obtained by People Power Party lawmaker Choi Eun-seok of the National Assembly’s Political Affairs Committee from the Korea Financial Investment Association on the 10th—4,584 (11.6%) of the 39,462 securities firm employees as of the end of the second quarter of this year were found to have traded single-stock leveraged ETFs. Of the 49 firms surveyed, 35 had a trading history. Looking only at these 35 firms with traders, the investment participation rate relative to the total number of employees rises to 11.8%.
The average return for the 35 securities firms with trading activity was positive (+) through the second quarter. Among them, KR Investment & Securities posted the highest return at 28%, while DB Securities recorded the lowest at 0.06%.
However, when the prices at the end of the third quarter are applied to the 14 single-stock leveraged ETFs these firms held at the end of the second quarter, the average return changes dramatically. The combined market value fell from 124.55 billion won at the end of the second quarter to 48.68 billion won at the end of the third quarter. The decrease over the three-month period amounted to 75.87 billion won, representing a decline of 60.91% compared to the market value at the end of June. Calculations show that if these employees had maintained their holdings, more than 60% of the market value would have been lost.
Unlike retail investors, securities firm employees are subject to annual investment limits as well as internal regulations governing trading turnover and the frequency of purchases. Given the restrictions on frequently adjusting portfolios in response to short-term market fluctuations, industry observers believe it is likely that they retained a significant portion of their holdings from the end of the second quarter into the third quarter.
An industry official pointed out, “This is a clear example showing that even securities industry employees—who are said to understand market mechanisms better than the average retail investor—were fully exposed to the ‘negative compounding effect,’ where principal is rapidly eroded in a sideways or declining market, as well as the downside risk inherent in derivative products.”

◇FSS Employees Also Invested… “Regulatory Body Itself Compromised Its Impartiality”
The structural risks of single-stock leveraged ETFs have backfired, ensnaring not only retail investors but even the financial authorities who hold the regulatory reins. The fact that employees of the Financial Supervisory Service (FSS)—who are tasked with curbing excessive stock market volatility and managing and supervising market order—were found to have traded these products has drawn significant criticism from both within and outside the industry.
According to data submitted to National Assembly Financial Services Committee member Park Seong-hun of the People Power Party by the Financial Supervisory Service (FSS), it was confirmed that as of the end of June, 13 FSS employees held a total of 166 million won worth of single-stock leveraged ETFs. This development undermines the remarks made by FSS Governor Lee Chan-jin, who had previously criticized the situation by stating that the product’s launch “should have been blocked at all costs” out of concern for investor losses caused by extreme volatility.
According to the “FSS Code of Conduct for Officers and Employees,” FSS staff are permitted to trade financial investment products up to 30 times per quarter, provided the total value does not exceed 50% of their total compensation from the previous year. However, given the nature of their duties, the trading of domestic and international exchange-traded and over-the-counter derivatives (such as futures and options) by officers and employees is strictly prohibited. For example, individual stock futures and options—such as “SK Hynix futures” and “Samsung Electronics futures”—are completely prohibited due to concerns over the use of non-public information and excessive speculative conflicts of interest.
However, single-stock leveraged ETFs—which track the return of a single underlying asset at twice the rate and effectively have a derivative structure similar to futures—were excluded from the ban because their legal classification is “exchange-traded funds (ETFs).” Since these can be traded simply by filing a quarterly report, just like regular stocks, regulators who claimed they intended to curb volatility have, in fact, jumped right into that very volatility themselves.
Professor Lee Sang-bok of Sogang University Law School pointed out, “The fundamental reason financial authorities have imposed a blanket ban on futures and options trading is to ensure impartiality as a capital market supervisory and inspection body and to prevent market distortions.” He added, “Nevertheless, the fact that employees of the supervisory authority are trading single-stock leveraged ETFs—products characterized by extreme volatility and derivative nature—is an act by which the supervisory body itself has abandoned its impartiality and transparency, thereby undermining market confidence.”