Korean Leveraged ETFs See Trading Volume Plummet 90% After Regulatory Intervention, Collecting 3.7 Billion Won in Fees Over Two Months

On August 7, retail investors in South Korea, focusing on high-leverage trades involving Samsung Electronics and SK Hynix, are shifting from the growth narrative of asset management companies to concerns about market stability from the perspective of regulators.

Since their launch on May 27, South Korea's first single-stock leveraged products have quickly become one of the most crowded trades in the current semiconductor rally of the Korean stock market. Sixteen single-stock ETFs and two ETNs designed around Samsung Electronics and SK Hynix allow investors to make directional bets of about 2 times on individual stocks. The initial launch coincided with a warming AI storage cycle, leading to a surge of retail funds into the market, pushing the total assets of the Korean ETF market to a historic high.

Winners on the fee side quickly emerged. Based on net asset size and fee rates, these single-stock leveraged ETFs generated nearly 3.7 billion won in management fees after about two months of operation. Samsung Asset Management, benefiting from the scale advantage and higher fee rates of its KODEX products, captured the majority, while Future Asset offered lower rates to gain market share. Early data shows that Samsung and Future Asset together hold over 90% of the net assets of these products, further concentrating liquidity in leading products.

However, this fee bonanza has also come with significant side effects. In mid-July, the Financial Services Commission of South Korea stated that the market capitalization and trading volume of single-stock leveraged products rose rapidly after their launch, with the weight of Samsung Electronics and SK Hynix in KOSPI peaking at 52%. Regulators also pointed out that the volatility of global storage stocks has significantly increased, and the high volatility of individual stocks like SK Hynix and Samsung Electronics, combined with product rebalancing trades, could amplify market shocks.

In response, South Korean authorities accelerated the tightening of regulations. Starting July 31, the minimum margin requirement for individual investors in these products was raised from 10 million won to 30 million won, requiring cash to meet this requirement and no longer recognizing alternative securities; regulators also suspended the launch of related new products, restricted advertising, and strengthened spread management and investor education.

There are already signs of cooling trading enthusiasm. Data from the Korean Exchange shows that after the introduction of new regulations, the daily trading volume of the related 16 single-stock leveraged/inverse ETFs dropped from about 10-12 trillion won (peaking at 15-20 trillion won) to around 1 trillion won (on August 3-4), with August 5 seeing a low of 919.8 billion won (falling below 1 trillion for the first time). There has been a slight recovery recently, with the trading volume of the 16 related ETFs around 7.45 trillion won on July 27.

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