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🇰🇷 South Korea /Economy & Trade

South Korea Tightens Leveraged Product Rules, Investors Shift to Other ETFs

From Hankyoreh · () Korean

Translated from Korean, summarized and contextualized by DistantNews.

At a glance

News Sources not specified Context piece
  • South Korean regulators raised the deposit requirement for single-stock leveraged products to curb speculation.
  • Following the regulation, trading volume in these products dropped significantly, but increased for other leveraged ETFs like KODEX Kosdaq150 Leverage and KODEX Semiconductor Leverage.
  • Experts suggest a consistent regulatory framework for all leveraged products is needed to prevent a

South Korean financial authorities have tightened regulations on single-stock leveraged products tied to Samsung Electronics and SK Hynix, increasing the minimum deposit from 10 million won to 30 million won. This move aims to curb speculative investment and volatility that had surged following the products' listing.

If somewhat higher regulations are applied to specific products, demand may shift to other domestic and international leveraged products, creating a balloon effect. In the mid- to long-term, it is desirable to establish a consistent regulatory framework across all leveraged products.

— Lee Hyo-seopA senior research fellow at the Capital Market Research Institute, commenting on the regulatory shift and its potential consequences.

The impact was immediate, with daily trading volume for these specific leveraged products plummeting from 12.4 trillion won to 600 billion won after the regulation took effect. However, this has not quelled investor appetite for leverage. Instead, capital appears to be shifting to other leveraged exchange-traded funds (ETFs).

We need to prevent the balloon effect where investment demand suppressed for single-stock leveraged products moves to other leveraged products.

— Lee Hyo-seopHighlighting the risk of regulatory arbitrage in the financial market.

Data shows a significant increase in trading for the KODEX Kosdaq150 Leverage ETF, which tracks the top 150 Kosdaq stocks with double the daily return. Its trading volume rose by nearly 50% in the week following the regulation. Similarly, the KODEX Semiconductor Leverage ETF, also tracking a double daily return, saw its trading volume more than triple.

The daily trading volume of 16 single-stock leveraged products decreased significantly from 12.4 trillion won on July 30 to 600 billion won on August 10.

— Article textQuantifying the immediate impact of the deposit requirement increase.

Lee Hyo-seop, a senior research fellow at the Capital Market Research Institute, warns that such a shift creates a "balloon effect," where regulatory pressure on one product simply redirects demand to others. He advocates for a comprehensive and consistent regulatory framework across all leveraged products, not just specific ones. Lee also suggests strengthening entry regulations for high-risk leveraged products and managing the overall proportion of leveraged investments within a portfolio. He further proposes improving systems like Individual Savings Accounts (ISA) and pension schemes to encourage long-term, diversified investments and mitigate financial market instability.

Trading volume for KODEX Kosdaq150 Leverage increased by 49.8% from 3.791 trillion won to 5.6789 trillion won.

— Article textIllustrating the shift in investment towards other leveraged ETFs.
DistantNews Editorial

Originally published by Hankyoreh in Korean. Translated, summarized, and contextualized by our editorial team with added local perspective. Read our editorial standards.

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