South Korean regulators plan to tighten oversight of equity-linked securities, or ELS, and other structured products starting next month, according to Bloomberg as cited by Odaily. Under the planned rules, brokerages will have to warn investors when a product approaches its knock-in level, the threshold at which losses of principal can be triggered. Firms will also need to reassess product design and sales when changes in market conditions make risks materially higher.
The move comes after sharp swings in the Korean stock market, even as retail appetite for high-risk trades has not cooled in a meaningful way. Following tighter regulation on single-stock leveraged ETFs, part of that demand has shifted into stock-linked ELS products that offer relatively high coupon payments. Data released by the Korea Financial Investment Association showed ELS sales in July reached KRW 3.5 trillion, the highest level since April 2023 in what Odaily described as a more than three-year peak. Products tied to shares of Samsung Electronics and SK Hynix led the increase.
The report said some investors remain positive on the AI chip cycle and the outlook for major semiconductor names. Although Samsung Electronics and SK Hynix shares have rebounded recently, they were still down by about 22% or more from record highs set in June. Some investors see rising demand for high-bandwidth memory, or HBM, and expanded shareholder return plans at both companies as factors that may reduce the risk of further declines.
South Korean financial regulators plan to tighten supervision of equity-linked securities, or ELS, and other structured products starting next month, according to Bloomberg in a report cited by Odaily.
Under the proposed measures, brokerages would be required to alert investors when a product nears its knock-in level, the threshold at which principal losses can be triggered. They would also need to reassess product design and sales if market conditions shift in ways that make the risks materially higher.
July ELS sales hit a more than three-year high
Recent swings in the South Korean stock market have not meaningfully cooled retail demand for higher-risk investments. After regulators tightened oversight of single-stock leveraged ETFs, part of that demand moved into stock-linked ELS products that offer relatively high coupon payments.
Data published by the Korea Financial Investment Association showed that South Korea's ELS sales reached KRW 3.5 trillion in July, the highest level since April 2023 and the strongest reading in more than three years. ELS products using shares of Samsung Electronics and SK Hynix as underlying assets were the main driver of the increase.
Investors are watching AI chips and semiconductor leaders
The report said investors chasing higher returns have been encouraged by optimism around the AI chip cycle and the future performance of major semiconductor companies.
Shares of Samsung Electronics and SK Hynix have rebounded in recent weeks, but they were still about 22% or more below the record highs reached in June. Some investors believe growing demand for high-bandwidth memory, or HBM, along with broader shareholder return plans at the two companies, could reduce the risk of further downside.
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