South Korea Slashes Leveraged Trading Volume by 93% After Deposit Rule Change

South Korea's financial regulators have successfully curbed speculative trading in single-stock leveraged products. By nearly tripling the minimum deposit requirement from 10 million won to 30 million won, the Korea Exchange has seen a dramatic 93% decrease in daily trading volume for these instruments.

Prior to the regulatory change on July 30, the combined daily trading volume for 16 single-stock leveraged products (including inverse options) stood at 12.4485 trillion won. Following the implementation of the enhanced deposit rule, this figure plummeted to 845.2 billion won as of August 7.

This sharp decline indicates a successful effort by the Financial Services Commission to cool down the market for high-risk, single-stock leveraged products. The tightened entry barrier has prompted a significant reallocation of capital, with investors redirecting their funds towards exchange-traded funds (ETFs) that track major stock market indices.

ETFs such as 'KODEX Leverage,' 'KODEX Kosdaq 150,' and 'TIGER US S&P500' have experienced substantial capital inflows. Notably, the top five performing ETFs in the past month were all related to the Kosdaq index, highlighting a shift in investor preference towards broader market tracking instruments. Analysts believe this move will help alleviate market concentration issues previously seen with single-stock leveraged ETFs.

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The government's regulation on single-stock leveraged ETFs is expected to resolve the concentration of market demand centered on large-cap stocks.