BlockBeats report: A week after the implementation of regulatory measures on single-stock leveraged and inverse ETFs in South Korea, trading activity for these products has significantly cooled, with transaction volumes falling below 1 trillion KRW for two consecutive trading days. According to data from the Korea Exchange (KRX), on August 7, the total trading volume of the 16 single-stock leveraged and inverse ETFs in South Korea amounted to 941.2 billion KRW, marking the second consecutive trading day below 1 trillion KRW following the previous day’s 919.8 billion KRW.
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.
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, stated 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 noted 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; thus, relying solely on domestic regulatory measures makes it difficult to fully suppress investor demand for exposure to semiconductor cycles and high-leverage strategies, and the long-term effectiveness of the regulation remains to be monitored. (Daum)