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Park Chan-kyong

South Korea’s financial authorities are weighing tighter curbs on high-risk leveraged exchange-traded funds (ETFs) as part of broader efforts to stabilise the country’s notoriously volatile stock market, which has left many investors with heavy losses and mounting debt.
The proposals could include giving regulators the power to reduce the leverage ratio of single-stock ETFs and raising the minimum investment requirement to discourage inexperienced retail investors from taking excessive risks, according to local media reports.
Single-stock leveraged ETFs allow investors to amplify their exposure to a company’s share price without owning the underlying stock, typically aiming to deliver twice the stock’s daily return.
Unlike conventional ETFs, which track diversified baskets of shares, these products are tied to a single firm – such as Samsung Electronics or SK Hynix – and use derivatives to magnify both gains and losses.
The products quickly gained popularity during South Korea’s stock market rally but have since come under scrutiny for amplifying market volatility.

Many retail investors who bought leveraged ETFs linked to semiconductor giants Samsung Electronics and SK Hynix near their peak have suffered steep losses after the shares tumbled sharply following record highs in June.
Kim Sang-bong, an economics professor at Hansung University, said many first-time investors entered the market late after the benchmark Kospi index more than tripled over the previous 18 months, rising from around 3,000 to a peak of more than 9,000 in June.
“At that time, I heard even my students in the canteen and the cleaners mopping the floors talking about buying Samsung and SK Hynix ETFs because the underlying shares had already become too expensive for them to purchase directly,” Kim told This Week in Asia.
“I felt sorry for them because the ETFs were launched when the underlying stocks were already trading at elevated levels and were due for a correction.”
Local media over the weekend quoted some investors who lamented they had lost up to 70 per cent of their investments.
The rapid growth in margin borrowing highlights the surge in speculative trading.
According to data from the Financial Supervisory Service submitted to the National Assembly on outstanding margin loan balances, investors in their 20s held 423.9 billion won (US$303 million) in margin loans as of the second week of April, more than double the 188.8 billion won recorded a year earlier.
Among older investors, borrowing rose even more sharply.
Outstanding margin loans held by investors aged 70 and above jumped 224.4 per cent from 761.6 billion won at the end of 2024 to 2.4709 trillion won at the end of June.
During the same period, balances for investors in their 60s climbed 169.3 per cent, from 2.6503 trillion won to 7.1371 trillion won.

Park Jong-seok, a psychiatrist specialising in treating stock market addiction, said demand for clinical help had surged.
“The number of patients seeking treatment for stock investment-related problems has more than doubled recently,” he said.
“Investors who started trading during a prolonged bull market have never experienced a major crash, making them more vulnerable to depression and panic disorder when prices fall.”
Samsung Electronics and SK Hynix spearheaded the market rally on expectations of booming AI demand. However, both stocks later lost between 40 per cent and 50 per cent of their peak values amid a broader market correction.
Following a sharp market sell-off earlier in the week, the two stocks rebounded more than 20 per cent on Friday, buoyed by a rally in US semiconductor shares and strong earnings from technology giants including Microsoft and Amazon. The gains proved short-lived, however, with both stocks falling about 7 per cent again on Monday.
Lee Hyo-seob, a senior research fellow at the Korea Capital Market Institute, said the heavy concentration of the Korean market in semiconductor stocks had exacerbated overall volatility.
“Samsung Electronics and SK Hynix account for more than half of the market’s total capitalisation, so sharp movements in these two stocks have an outsize impact on the broader market,” he said.
Analysts also attribute the volatility to risk-averse foreign investors, who often rotate out of Korean equities into US assets during periods of uncertainty, as well as geopolitical tensions and the relatively small size of South Korea’s stock market.
Against this backdrop, the Financial Services Commission (FSC) is preparing amendments to the Capital Markets Act that would provide regulators with emergency powers to stabilise markets during periods of extreme volatility, according to Yonhap news agency.
The centrepiece of the proposal would authorise the FSC to reduce the leverage ratio of single-stock leveraged ETFs from the current two times to 1.5 times or lower during periods of market stress.

The amendments could also introduce additional investor protection measures, including limits on individual investment exposure, mandatory simulated trading before retail investors can access the products, higher minimum investment requirements, and powers to restrict or suspend trading when necessary.
Regulators are considering capping holdings of single-stock leveraged ETFs at about 20 per cent of an investor’s financial portfolio on a per-account basis.
They are also weighing a further increase in the minimum investment requirement, from the current 30 million won to as much as 50 million won.
In a rare public apology over the controversy surrounding leveraged ETFs, FSC chairman Lee Eog-weon said during a National Assembly session last week that he regretted failing to meet public expectations.
In a report submitted to parliament last week, Lee said the FSC would consider further measures to dampen demand for single-stock leveraged ETFs.
Last month, the FSC announced measures that included raising the minimum cash deposit required to invest in single-stock leveraged ETFs from 10 million won to 30 million won. The new rule took effect on Friday.
The government also brought forward the implementation date by several weeks to calm market volatility.
Lee said the FSC was also examining a cap that would limit investment in single-stock leveraged ETFs to no more than 20 per cent of an individual’s total financial investment portfolio, along with the possibility of further raising the minimum investment threshold.


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South Korea tightens grip on high-risk ETFs as investor losses mount

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A screen shows the Korea Composite Stock Price Index (Kospi), SK Hynix and Samsung Electronics stock price at the foreign exchange dealing room of the Hana Bank headquarters in Seoul, South Korea, on July 30. Photo: AP

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Regulators are eyeing curbs such as reducing the leverage ratio of single-stock ETFs and raising the minimum investment requirement


Regulators are eyeing curbs such as reducing the leverage ratio of single-stock ETFs and raising the minimum investment requirement.


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South Korea tightens grip on high-risk ETFs as investor losses mount

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}Regulators are eyeing curbs such as reducing the leverage ratio of single-stock ETFs and raising the minimum investment requirement

Regulators are eyeing curbs such as reducing the leverage ratio of single-stock ETFs and raising the minimum investment requirement