Calls Grow in South Korea to Tighten Oversight of Single-Stock Leveraged ETFs
Regulatory controversy surrounding single-stock leveraged ETFs continues to build in South Korea. According to BlockBeats, Ahn Cheol-soo, a lawmaker from the People Power Party and a former presidential candidate, has publicly called for strong measures, including the possible delisting of leveraged ETFs tracking Samsung Electronics and SK Hynix. He argued that the country’s benchmark KOSPI index has effectively “turned into a casino.”
Ahn said capital flowing into leveraged ETFs linked to Samsung Electronics and SK Hynix has reached KRW 212 trillion. He added that the two companies together account for roughly 60% of the KOSPI’s total market capitalization, meaning that the combination of heavyweight index constituents and leveraged fund flows is magnifying instability across the broader market.
Newly Launched Products Triggered Sharp Price Dislocations
South Korea introduced its first domestic 2x single-stock leveraged ETFs in late May this year, aiming to draw high-risk trading demand back into local markets. However, after launch, the products quickly attracted criticism due to daily rebalancing mechanics and liquidity constraints that contributed to significant pricing distortions. So far this year, the Korean stock market has triggered the “sidecar” program trading curb 31 times, while circuit breakers have been activated 5 times. The KOSPI volatility or “fear” index also briefly climbed to a record high of 90.8.
One of the most cited cases came in early June, when a leveraged ETF tied to SK Hynix rose about 50% in a single session even though the underlying stock fell nearly 8% over the same period. At one point, the ETF’s secondary-market price traded at a premium of as much as 86% to its net asset value. That premium disappeared rapidly the following day, and the ETF then fell about 27%, underscoring the pricing risks embedded in such products during periods of extreme volatility.
Bank of Korea and Parliament Signal a More Cautious Regulatory Stance
As market swings intensify, both the Bank of Korea and financial regulators have recently adopted a more cautious tone. The central bank has warned that continued expansion of single-stock leveraged ETFs could further increase market concentration, worsen volatility, and amplify the risk of losses for retail investors.
South Korea’s National Assembly has now begun reviewing these products and is discussing tighter regulatory measures. Those discussions could ultimately extend to pushing for the delisting of related ETFs, marking a potentially significant escalation in the country’s response to risks tied to leveraged single-stock exposure.