The Korean stock market has become too wild, and regulators dare not add fuel to the fire. The Korean exchange has urgently halted the planned weekly options for individual stocks set to launch next week.
The weekly single-stock options program, originally scheduled to launch on June 29, has been put on hold by the Korean Exchange. The underlying assets include four leading companies: Samsung Electronics, SK Hynix, Hyundai Motor, and LG Energy Solution.
The exchange explained to the Financial Times on Thursday that the recent significant market volatility was the direct reason for adjusting the timeline. This month saw a single-day drop of 8% followed immediately by an 8% rebound, and such extreme fluctuations have made regulators more cautious. The exchange stated in its announcement: “Considering recent market conditions, we have decided to delay the listing.”
Prior to this, the head of the Financial Supervisory Service of Korea expressed "regret" over the launch of leveraged ETFs linked to Samsung Electronics and SK Hynix. These products have rapidly gained popularity among retail investors due to their high leverage characteristics.
Driven by the chip cycle fueled by artificial intelligence, the stock prices of these two companies have surged significantly: Samsung Electronics has more than doubled this year, while SK Hynix has risen over threefold. Inflows of capital have boosted market activity but also amplified volatility risks.
Some leveraged ETFs have even shown price movements diverging from their underlying assets, with liquidity issues becoming a concern. On June 8, the ACE SK Hynix Single Stock Leveraged ETF rose nearly 50% despite its underlying stock falling 7.7% on the same day, drawing attention to this abnormal movement.
As South Korea’s key stock market indicator, the KOSPI index has experienced significantly increased volatility this year, with the number of circuit breaker triggers reaching a record high. The index plunged 10% on Tuesday, then rebounded by 9%.
The indicator measuring market volatility has risen to 95, reaching a historic high. Meanwhile, the structure of market participation has also changed: currently, about half of all adults in South Korea hold securities accounts, a significant increase from 21% in 2019.
The margin trading balance has also risen to a record high of 37 trillion Korean won (approximately $24 billion), indicating a continued expansion in the proportion of leveraged funds in the market.
Despite rising risks, regulators still aim to enrich domestic investment tools by introducing weekly individual stock options, thereby reducing investors' need to turn to overseas markets for similar products.
However, market concentration has become a new source of instability. The rally in AI-related sectors has continuously increased the weight of Samsung Electronics and SK Hynix, which now together account for more than half of the KOSPI index. Previously, Jeong Eun-bo, CEO of the Korea Exchange, noted that the high concentration in the memory chip sector could further amplify market volatility.
Meanwhile, corporate-level capital operations are also advancing. SK Hynix disclosed in a regulatory filing on Wednesday that it plans to launch American Depositary Receipts (ADRs) on Nasdaq next month to expand overseas investor participation. Japanese memory chip manufacturer Kioxia stated on Thursday that it plans to list in the U.S. next year.
The Korean exchange stated that it will proceed with the listing of weekly individual stock options once market conditions stabilize and related preparations are completed.