- South Korea reviews tighter rules after leveraged Samsung and SK Hynix ETFs posted steep losses.
- Regulators may limit leveraged ETFs to professionals and reduce the current 2x leverage.
- Retail investors demand ETF reforms as lawmakers debate stricter controls over high-risk funds.
South Korean financial authorities are reviewing tighter restrictions on single-stock leveraged exchange-traded funds (ETFs) tied to Samsung Electronics and SK Hynix after market declines erased billions in retail investor wealth.
The debate grew after Finance Minister Koo Yun-cheol publicly apologized for the heavy losses, while lawmakers, regulators, and investor groups examined whether the high-risk products should remain widely available.
Regulators Consider Tighter Investment Rules
Authorities are considering measures that would further limit access to the products rather than immediately removing them from the market. Finance Minister Koo Yun-cheol apologized after retail investors invested about 14 trillion won ($9.7 billion) in single-stock leveraged ETFs, only to incur heavy losses.
The KODEX SK Hynix 2x ETF has fallen by more than 80% from its June peak, while the comparable Samsung Electronics product has declined by about 75%. During the same period, the KOSPI dropped almost 35% amid a broader selloff in semiconductor stocks.
Beginning on July 31, individual investors making new or additional purchases of single-stock leveraged ETFs will be required to hold a minimum cash deposit of 30 million won. Financial Services Commission Chairman Lee Won-geon said the industry expects the number of trading accounts to decline from roughly 100,000 to about 10,000, while trading volume could decrease by around 60%.
Lee also said regulators are reviewing additional measures, including increasing the minimum deposit requirement further, reducing the current 2x leverage ratio, restricting new purchases to professional investors, and introducing investment limits based on investor categories.
Public Pressure and Political Debate Intensify
Public criticism grew after approximately 30 condolence wreaths were placed outside the National Assembly by the retail investor group Association for the Normalization of the Stock Market.
The group called for the abolition of single-stock leveraged ETFs, arguing that the products magnified volatility in Samsung Electronics and SK Hynix shares and deepened losses for individual investors.
Within the Democratic Party, some lawmakers questioned whether the products were appropriately designed. Rep. Oh Ki-hyung described them as high-risk investment products that departed from the traditional diversification associated with ETFs and said they had become one factor contributing to market disruption.
However, other lawmakers urged caution against immediate delisting. Rep. Kim Nam-geun said rushing to remove the products could lower belief in the stock market, suggesting that reducing volatility and marketability would be a more measured approach.
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