South Korea Bans New Leveraged ETFs as Higher Rates Weigh on Crypto

Key Insights:

• South Korea halted new single-stock leveraged ETF listings after volatility surged across local technology shares.
• Retail investors must hold 30 million won to trade single-stock leveraged ETFs from August 5, up from 10 million won.
• The Bank of Korea raised its benchmark rate to 2.75%.

South Korea has restricted new single-stock leveraged ETFs after market swings raised concerns over local retail risk. The Financial Services Commission will stop new listings until trading conditions stabilize. Regulators will also raise the minimum cash requirement for investors using these products. The action follows heavy demand for leveraged funds linked to Samsung Electronics and SK Hynix. The Bank of Korea has raised rates for the first time since January 2023.

South Korea will halt new listings of single-stock leveraged ETFs tied to large technology companies. The Financial Services Commission announced the measure on July 16 after volatility increased across local equity markets.

The decision follows the late-May approval of leveraged ETFs linked to Samsung Electronics and SK Hynix. These products became popular among retail traders seeking amplified daily returns. Their growth also created larger daily rebalancing trades during sharp price movements.

The KOSPI fell more than 6% on Thursday and moved toward bear-market territory. Despite that drop, it still ranked among the strongest major equity markets in 2026.

Starting August 5, investors must keep at least 30 million won to trade single-stock leveraged ETFs. The current requirement stands at 10 million won. The higher threshold will cover domestic and foreign-listed products used by South Korean investors.

Regulators will require asset managers to retain qualified liquidity providers. Those firms will manage wide gaps between market prices and fund values. The commission said stronger liquidity support should reduce pricing disruptions during volatile sessions.

Single-stock leveraged ETFs use derivatives to multiply a company’s daily return. Frequent rebalancing can produce trading activity above direct investor flows. Fees, trading costs, and daily resets can also weaken returns when markets move unevenly.

Retail investors increased borrowed equity positions before the restrictions. Margin-based investment reached a record 60 trillion won at the end of May. The new rules target products that can produce faster losses during market declines.

The Bank of Korea raised its benchmark rate by 25 basis points on July 16. The increase lifted the policy rate from 2.50% to 2.75%. All seven Monetary Policy Board members supported the decision.

The move marked South Korea’s first rate increase since January 2023. Economists largely expected the decision, with 36 of 37 respondents predicting a rise in a Reuters poll. The central bank cited stronger exports, firm investment, persistent inflation, and financial stability risks.

Consumer inflation reached 3.2% in June. The central bank also expects growth to exceed its earlier 2.6% forecast. Governor Hyun Song Shin said growth, inflation, and financial conditions supported tighter policy.

Higher borrowing costs can reduce money available for risk-based trading. That shift may affect leveraged equities and cryptocurrency markets, where South Korean retail activity plays an important role.

According to data compiled by the Bank of Korea and cited by local media, South Korean crypto holdings fell from about 121.8 trillion won ($83.3 billion) in January 2025 to 60.6 trillion won ($41.4 billion) by February 2026.

Won deposits held on exchanges declined from 10.7 trillion won to 7.8 trillion won. That fall showed lower cash demand for domestic crypto trading. Higher deposit and bond yields may place added pressure on speculative activity.

The Bank of Korea has kept further rate increases under consideration. Many economists expect another increase this year, potentially lifting the benchmark rate to 3.00%.

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