In two months, 3.7 billion won in fees were collected, and the trading volume of South Korean leveraged ETFs plummeted by 90% after regulatory intervention

Retail investors in South Korea are shifting their focus from the growth story of asset management companies to market stability issues in the eyes of regulators, surrounding high-leverage trading of Samsung Electronics and SK Hynix.

Since their debut on May 27, the first batch of single-stock leveraged products in South Korea has 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 a single stock. The launch of these products coincided with the warming of the AI storage cycle, leading to a surge of retail funds into the market, pushing the total assets of the Korean ETF market to a historical high at one point.

Winners on the fee side quickly emerged. Estimated by 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 took the lion's share due to the scale advantage and higher fee rates of its KODEX products, while Future Asset offered lower fees to gain market share. Early data from Korean media has shown that Samsung and Future Asset together account for over 90% of the net assets of such products, with liquidity further concentrating on leading products.

However, this fee feast has also come with significant side effects. In mid-July, the South Korean Financial Services Commission stated that the market value and trading volume of single-stock leveraged products rose rapidly after their launch, with the weight of Samsung Electronics and SK Hynix in KOSPI once reaching 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.

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

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