South Korea's Leveraged ETF Trading Volume Plummets Following New Regulations

Deep News
08/04

Trading volumes for leveraged exchange-traded funds (ETFs) linked to the nation's two main chipmakers have sharply declined after South Korean regulators intervened to curb speculative trading. The largest single-stock leveraged ETF in South Korea, which tracks the performance of SK Hynix, saw its Monday volume fall to 59 million shares, its lowest level since June 4.

A smaller, similar ETF linked to Samsung Electronics also saw its trading volume drop to an all-time low since its listing in late May. These leveraged products had previously contributed to intense volatility in the South Korean stock market.

Last month, regulators introduced cooling measures, including raising the minimum cash balance requirement for investor accounts and temporarily banning the listing of new single-stock leveraged ETFs. By using derivatives to amplify returns, these ETFs had sparked a retail trading frenzy, making the $3.7 trillion South Korean market one of the most volatile in the world.

Peter Park, head of Korean equity sales at NH Investment & Securities, noted that "speculative leveraged trading in large-cap tech stocks has been curbed. Investors can sell their existing holdings without restriction, but new purchases face a higher cash balance threshold, effectively ending the era of frequent retail speculation."

Since July 31, regulators have raised the minimum cash balance required for leveraged ETF trading from 10 million won to 30 million won. They have also announced a suspension of new single-stock leveraged ETF listings until market conditions stabilize. Despite these measures, the Kospi index, a bellwether for global AI-themed trades, remains up roughly 48% year-to-date. However, this rally has been accompanied by extreme volatility, with South Korea's stock market triggering circuit breakers four times in July—a historic first.

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