South Korea’s stock market triggered circuit breakers on July 28 and July 29, marking the first back-to-back trading halts of that kind in the market’s history. Losses in single-stock leveraged exchange-traded funds tied to Samsung Electronics and SK Hynix were amplified to roughly 25% at one point, pushing angry retail investors to direct their protest at the products themselves.
On July 29, more than 30 white funeral wreaths were lined up outside the National Assembly in Yeouido, Seoul. Protesters demanded the abolition of single-stock leveraged ETFs. One message read, “We will take revenge with our votes,” while others said investor protection was just a slogan.
Two days of circuit breakers magnified losses in leveraged products
BlockTempo reported that the products at the center of the selloff were single-stock leveraged ETFs linked to Samsung Electronics and SK Hynix. With a 2x leverage structure, a 10% rise in the underlying stock can theoretically produce a 20% gain in net asset value. A 10% drop works the same way in reverse, cutting NAV by 20%.
That structure pushed losses in the ETFs tracking those two stocks to nearly 25% at one stage. The two consecutive trading-day circuit breakers were not only the first in South Korean market history, but also the ninth such halt this year.
Retail holders took their complaints to parliament
The protest was organized by holders of the leveraged ETFs who suffered steep losses during the selloff. The funeral wreaths were used as a symbol of mourning for accounts that had been sharply depleted, and the message was aimed directly at single-stock leveraged ETF products.
These ETFs rebalance their positions at the close every day and are designed to deliver twice the daily return of the underlying stock. The risk is not limited to leverage alone. Daily reset mechanics can create a drag effect, which means that even if SK Hynix or Samsung Electronics later recover all of their lost ground, the ETF NAV may still fail to rebound in the same proportion because repeated volatility itself erodes value.
Officials offered conflicting responses
South Korean officials did not speak with one voice on where responsibility should lie. Presidential Policy Chief Kim Yong-beom, who was in Brazil accompanying the president, broke the issue into three factors: uncertainty over whether AI investments will pay off, fierce global competition in semiconductors, and broader market structure.
That framing suggested the blame should not fall entirely on leveraged ETFs. Financial Supervisory Service Governor Lee Chan-jin struck a very different tone. He said, “I regret whether I should have tried with all my strength to stop it.” The remark amounted to an acknowledgment that regulators may have had a chance to block the products during the approval stage.
The ruling party is split, while a new rule takes effect on July 31
Inside the ruling party, some lawmakers have described the products as a “gambling-style weapon” and argued they should be taken off the market and overhauled. Others worry that an abrupt delisting would damage market credibility, and prefer to cool demand by raising trading thresholds instead.
The policy now set to take effect on July 31 requires investors to prepare 30 million won in margin before newly buying or adding to single-stock leveraged products. The report said the threshold is expected to cut overall trading activity in leveraged ETFs by more than 60%, while also sharply reducing the number of new trading accounts.
Regulatory action came after the damage was already visible
The report described the key structural risks in these products as the combination of 2x leverage, daily settlement and negative compounding. It also said that structure resembles the pattern seen when retail traders are repeatedly liquidated in crypto perpetual futures markets.
The difference, it noted, is that leveraged ETFs come wrapped in the label of a regulated product and are sold through brokerages to many ordinary investors who may have little experience with derivatives. The ETF label itself can also make the product appear more conservative than it is.
On the timeline presented in the report, regulatory action lagged the market. Internal regret over allowing the products had already surfaced in June. Review of new leveraged product listings was temporarily suspended in mid-July. The increase in the margin threshold to 30 million won did not arrive until the end of July, after the market shock had already unfolded.
Because South Korea has a large base of retail investors, the group’s voting power could affect the speed and intensity of any legislative response. Whether leverage limits will be reduced further and whether retail eligibility will be tightened remain open questions.