South Korean leveraged trading volume rebounds despite tighter rules

Trading volume for single-stock leveraged products in South Korea is showing an upward trend, reversing a sharp decline that followed the implementation of stricter regulations. The combined trading value for 16 single-stock leveraged products, including inverse options, reached 844.7 billion won on August 14, after plummeting from 12.44 trillion won on July 30, the day before the new rules took effect.

Financial authorities had raised the minimum deposit requirement for single-stock leveraged products from 10 million won to 30 million won on July 31. This led to a significant drop in trading volume, which fell to 592.3 billion won on August 10. However, the volume has since rebounded, hovering around the 800 billion won mark in the days leading up to August 14.

Market analysts suggest this resurgence is not necessarily a sign of recovering investor confidence but rather a result of investors cashing in on their holdings. Individual investors net sold 263.3 billion won worth of SK Hynix leveraged products and 224.8 billion won of Samsung Electronics leveraged products between August 3 and August 14. Foreign investors also showed a net selling preference for SK Hynix and Samsung Electronics leveraged products, selling 246.2 billion won and 47.1 billion won, respectively. This indicates that investors likely sold these products to realize profits as the stock prices of both companies rebounded.

Further regulatory measures are set to be implemented starting August 19, which could further suppress investor sentiment. The government will strengthen the management standards for the rate of deviation for Exchange Traded Funds (ETFs) and Exchange Traded Notes (ETNs). Additionally, mock trading will become mandatory for investors before they can trade single-stock leveraged products. This will allow investors to experience a simulated trading environment using virtual funds on the Korea Exchange website, mirroring actual trading conditions.