Trading in South Korea’s single-stock leveraged and inverse ETFs has cooled noticeably one week after tighter rules took effect, with turnover staying below 1 trillion won for two consecutive trading days.
Data from the Korea Exchange (KRX) showed that the combined turnover of 16 single-stock leveraged and inverse ETFs in the Korean market reached 941.2 billion won on Aug. 7. That followed 919.8 billion won in the previous trading session, leaving the segment below the 1 trillion won mark for a second straight day.
Market watchers attributed the decline largely to new regulatory measures that came into force on July 31. The rules raised the threshold for ordinary retail investors seeking exposure to single-stock leveraged ETFs, increasing the base margin requirement from 10 million won to 30 million won in cash.
Turnover fell sharply after the rules took effect
The data showed that on July 30, the day before the new rules were implemented, turnover in the 16 ETFs had reached 12.45 trillion won. On July 31, the first day of the new regime, that figure dropped sharply to 3.15 trillion won.
The pullback then continued. Turnover fell to 1.39 trillion won on Aug. 3 and 1.26 trillion won on Aug. 4, before slipping below 1 trillion won in recent sessions.
The share of single-stock leveraged and inverse ETFs in South Korea’s broader ETF market also declined sharply. On Aug. 7, the segment accounted for 5.6% of ETF trading, compared with 30% to 40% before the regulatory changes.
Securities firms point to a shift into substitute products
Korean securities firms said the demand itself has not fully disappeared. Instead, part of the flow appears to be shifting into semiconductor leveraged ETFs and overseas-listed leveraged products, in what was described as regulatory arbitrage or a balloon effect.
Jung Hyun-jong, a researcher at Korea Investment Securities, said trading volume in single-stock leveraged ETFs declined after the rules were introduced, while turnover in semiconductor leveraged ETFs increased. That, he said, suggests that some funds are moving into substitute products, and that related products in overseas markets could also attract those flows.
Jung added that ETFs listed abroad are not subject to domestic Korean restrictions, which could push investors toward overseas single-stock leveraged ETFs. Among them, the Hong Kong-listed CSOP SK Hynix Daily (2x) Leveraged Product is currently one of the world’s largest single-stock leveraged ETFs by market capitalization.
He said domestic regulation alone may struggle to fully curb investor demand tied to the semiconductor cycle and high-leverage strategies, and that the longer-term effect of the measures still needs to be monitored.
The report cited Daum as the source.