Lee Chan-jin, Governor of South Korea's Financial Supervisory Service (FSS), warned asset management executives about false and exaggerated ETF advertising practices during a meeting on January 13 at the Korea Financial Investment Association in Seoul Yeouido. The warning followed recent controversies over misleading promotions, particularly regarding SpaceX pre-IPO investment claims that failed to materialize. Lee emphasized that investor protection requires accurate advertising as investors heavily rely on asset managers' promotional materials when selecting ETFs, and he expressed disappointment that major asset management firms have repeatedly committed such violations.
Lee Chan-jin Issues Warning on ETF Advertising Practices
Lee Chan-jin addressed 20 asset management CEOs at the January 13 meeting, stating that "false and exaggerated advertising by asset managers is a very serious matter from an investor protection perspective, as investors primarily rely on asset manager advertisements when selecting ETFs." He added that "it is very regrettable that such cases have frequently occurred at large asset management firms that should serve as examples for the industry." The FSS Governor requested that asset managers ensure accurate investment information reaches investors during the advertisement production and internal review process.
Korea Investment & Trust Management Faces Scrutiny Over SpaceX Promotion
Lee's remarks indirectly referenced the controversy surrounding Korea Investment & Trust Management's SpaceX IPO advertising. The firm promoted that investors purchasing its ETF before SpaceX's listing could invest in SpaceX at the IPO price, but ultimately failed to receive any IPO allocation. The FSS conducted an on-site inspection regarding this matter.
FSS Urges Tracking Error Management for ETF Products
Lee requested that asset managers "work together with liquidity provider securities firms to ensure thorough tracking error management during ETF operations." According to the Korea Exchange, single-stock leverage ETFs recorded a total of 57 tracking error excess disclosures in the previous month. Tracking error represents the difference between an ETF's actual net asset value (NAV) and its market price.
Single-Stock Leverage ETF Measures Not Discussed at Meeting
Despite recent market volatility attributed to Samsung Electronics and SK Hynix single-stock leverage ETFs, Lee did not address this topic in either his opening remarks or during the closed-door meeting. Lee, who previously stated at the end of the previous month that regulators should have "blocked the launch even if it meant lying down" to prevent single-stock leverage ETFs, only remarked that he is concerned about recent market concentration and asked asset managers to carefully consider investor perspectives. One asset management CEO who attended the meeting stated that "since both public and private asset managers gathered together, most of the discussion focused on voting rights exercise." Major securities CEOs are scheduled to hold a closed-door meeting on January 14 to exchange opinions on the impact of single-stock leverage products on the stock market and investor protection measures during volatile markets.
FAQ
What did FSS Governor Lee Chan-jin warn about on January 13?
Lee Chan-jin warned asset management CEOs about false and exaggerated ETF advertising practices during a meeting at the Korea Financial Investment Association in Seoul Yeouido on January 13. He emphasized that such advertising is a serious investor protection issue and expressed disappointment that violations have frequently occurred at major asset management firms.
Why did Korea Investment & Trust Management face regulatory scrutiny?
Korea Investment & Trust Management promoted that investors purchasing its ETF could invest in SpaceX at the IPO price before the company's listing, but the firm ultimately failed to receive any SpaceX IPO allocation. The FSS conducted an on-site inspection regarding this misleading advertising.
