Retail Trading in South Korea's Leveraged ETFs Plunges After New Curbs
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South Korea's tighter rules for single-stock leveraged ETFs (higher initial margin, simulated trading requirement, and planned lot-size increase) have sharply curtailed retail participation. Products linked to SK Hynix and Samsung Electronics saw large net outflows and a >90% collapse in average daily trading volume after July 31. Near-term, this reduces liquidity and speculative demand in these leveraged vehicles, while raising the risk of activity rotating into index-based or overseas leveraged ETFs.
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Odaily Planet Daily reports that South Korea's tightening of rules on single-stock leveraged ETFs has sharply reduced retail activity in products that had been heavily focused on Samsung Electronics and SK Hynix.
Following the changes, funds linked to SK Hynix saw net outflows of about KRW 1.2415 trillion across eight products, while Samsung Electronics-related products posted net outflows of roughly KRW 531.6 billion across eight products.
Trading volumes also collapsed. From their launch in May through July 30, the 16 products averaged around KRW 11.6787 trillion in daily turnover. In August, average daily turnover fell to about KRW 1.0059 trillion, a drop of more than 90%, leaving activity at roughly 8% of pre-restriction levels.
The regulatory crackdown began on July 31. South Korea's financial regulator raised the initial margin requirement for single-stock leveraged ETFs to KRW 30 million from KRW 10 million. From Aug. 19, investors must complete a simulated trading session before they can trade these products. The regulator also plans to raise the minimum trading unit, with a change to 20 shares expected before November.
Some market participants warn that demand for restricted leverage may migrate to index-based or overseas leveraged ETFs, meaning the longer-term impact of the measures remains to be seen.
Before the new rules, the products were popular with South Korean retail investors. Between May 27 and July 30, individual investors net bought about KRW 1.52876 trillion of the 16 products, including KRW 993.65 billion in SK Hynix-linked funds and KRW 535.11 billion in Samsung Electronics-linked funds. (newsis)
