Odaily Planet Daily report: One week after the implementation of regulatory measures on South Korea’s single-stock leveraged and inverse ETFs, trading activity for these products has significantly cooled, with transaction volumes falling below 1 trillion Korean won for two consecutive trading days.
According to data from the Korea Exchange (KRX), on August 7, the total trading volume of 16 single-stock leveraged and inverse ETFs in the Korean market amounted to KRW 941.2 billion, marking the second consecutive trading day below KRW 1 trillion, following KRW 919.8 billion on the previous trading day.
The market believes the decline in trading volume is primarily due to new regulatory measures implemented on July 31, which raised the capital threshold for individual retail investors participating in leveraged ETFs on single stocks, increasing the initial margin requirement from 10 million KRW to 30 million KRW in cash.
Data shows that on the day before the regulation took effect (July 30), the trading volume of 16 related ETFs reached KRW 1.245 trillion; it sharply dropped to KRW 315 billion on the first day of regulation (July 31), and continued to decline, falling to KRW 139 billion on August 3 and KRW 126 billion on August 4, recently dropping below KRW 1 trillion.
Meanwhile, the trading volume share of single-stock leveraged and inverse ETFs in South Korea's ETF market also dropped significantly, falling to 5.6% on August 7, compared to 30% to 40% prior to regulation.
However, South Korean securities regulators noted that investment demand has not disappeared entirely but has shifted toward semiconductor leveraged ETFs and overseas-listed leveraged products, a phenomenon known as "regulatory arbitrage" or the "balloon effect."
Chung Hyun-jong, a researcher at Korea Investment & Securities, noted that after the implementation of regulations, trading volumes for individual stock leveraged ETFs declined, but trading volumes for semiconductor leveraged ETFs increased, indicating that some capital is shifting toward alternative products, which may also include overseas-related products. Chung pointed out that since overseas-listed ETFs are not subject to domestic regulatory restrictions in Korea, investors may turn to overseas single-stock leveraged ETFs. Among these, the CSOP SK Hynix Daily (2x) Leveraged Product listed in Hong Kong is currently one of the largest single-stock leveraged ETFs globally by market capitalization. It is difficult to fully suppress investor demand for semiconductor cycles and high-leverage strategies through domestic regulatory measures alone, and the long-term effectiveness of the regulation remains to be monitored. (Daum)