South Korean leverage ETFs see 90% drop in trading volume after regulatory intervention

Huo Xing Finance reports: On August 7, South Korean retail investors shifting away from the growth narrative surrounding Samsung Electronics and SK Hynix leveraged trades are now raising concerns for regulators about market stability. Since their listing on May 27, South Korea’s first single-stock leveraged products have rapidly become among the most crowded trades in the current semiconductor rally. Sixteen single-stock ETFs and two ETNs designed around Samsung Electronics and SK Hynix allow investors to take approximately 2x directional bets on individual stocks. Their launch coincided with rising demand in the AI storage cycle, prompting a flood of retail capital into the market and pushing the total assets under management in South Korea’s ETF sector to historic highs. The winners on the fee side quickly emerged. Estimating based on net asset value and expense ratios, these single-stock leveraged ETFs generated nearly KRW 3.7 billion in management fees within roughly two months of operation. Samsung Asset Management, benefiting from the scale advantage and higher fees of its KODEX products, captured the largest share, while Mirae Asset gained market share through lower fees. Early media data showed that Samsung and Mirae Asset together accounted for over 90% of the net assets in this product category, further concentrating liquidity among top-tier offerings. However, this fee bonanza came with significant side effects. In mid-July, the Financial Services Commission noted that after their listing, the market capitalization and trading volume of single-stock leveraged products surged rapidly, causing Samsung Electronics and SK Hynix’s combined weight in the KOSPI to rise as high as 52%. Regulators also pointed out that global volatility in memory stocks had significantly increased, and the high volatility of individual stocks like SK Hynix and Samsung Electronics, combined with product rebalancing trades, could amplify market shocks. In response, South Korean authorities accelerated regulatory tightening. Effective July 31, the minimum initial margin requirement for individual investors trading these products was raised from KRW 10 million to KRW 30 million, and must now be met in cash—alternative securities are no longer accepted. Regulators also suspended the launch of new related products, restricted advertising, and strengthened spread management and investor education. Trading activity has already cooled. Data from the Korea Exchange shows that after regulatory measures took effect, daily trading volume for the 16 single-stock leveraged/inverse ETFs dropped from previous levels of approximately KRW 10–12 trillion (peaking at KRW 15–20 trillion) to around KRW 1 trillion (August 3–4), and fell as low as KRW 919.8 billion on August 5—the first time it dipped below KRW 1 trillion. Recent activity has seen slight recovery, with trading volume for the 16 ETFs reaching approximately KRW 745 billion on July 27.