South Korean Retail Investors Protest with Funeral Wreaths at National Assembly: Abolish Single-Stock Leveraged ETFs

More than 30 white 'condolence wreaths' appeared in front of the National Assembly on Yeouido Island in Seoul, South Korea, on Wednesday (29th). The wreaths bore messages such as 'Is investor protection just lip service?', 'Abolish single-stock leveraged ETFs,' and 'We will retaliate with our votes.' This protest, initiated by South Korean retail investor groups, reflects growing anger following the recent sharp decline in the Korean stock market, where high-leverage ETFs amplified investor losses, fueling market dissatisfaction with regulation and investor protection.

The trigger for this protest was the historic market turmoil that struck the South Korean stock market over two consecutive days. On July 28, the KOSPI index plunged over 8%, triggering the market-wide circuit breaker. Then, on the 29th, the index dropped as much as 12.63% intraday, closing down 5.98%. This marked the first time in South Korea's stock market history that circuit breakers were activated for two consecutive trading days—an extreme and unprecedented event.

During this market crash, single-stock leveraged ETFs linked to Samsung Electronics and SK Hynix became a 'nightmare' for retail investors. These products, which use a daily 2x return mechanism to track underlying stocks, saw their losses magnified when SK Hynix's share price dropped over 18% intraday and Samsung Electronics fell nearly 13%. As a result, the related leveraged ETFs plunged by approximately 25%.

For many South Korean retail investors who had bet on the semiconductor sector, leveraged instruments failed to deliver outsized returns and instead became 'wealth-destroying machines' that accelerated the erosion of their assets.

Experts emphasize that single-stock leveraged ETFs are inherently high-risk financial products, unfriendly to ordinary investors. These ETFs use derivatives to amplify daily price movements—so while a 2x leveraged ETF theoretically gains 20% when the underlying stock rises 10%, it also loses 20% of its net asset value when the stock drops 10%.

Moreover, their daily rebalancing mechanism leads to severe negative compounding effects. Even if the underlying stock recovers to its original price, the ETF's net value often fails to rebound due to volatility drag.

Protesters argue that although these products carry the 'ETF' label, they completely deviate from the traditional ETF principle of risk diversification. In reality, they represent a highly concentrated, high-risk bet on a single stock.

They strongly demand that regulators abolish these products outright, blaming authorities for allowing high-risk instruments to be widely sold to individual investors lacking professional knowledge, without adequate risk disclosure—making regulators primarily responsible for the collapse of retail investors' wealth.

Facing public outrage and media pressure, South Korea's government is divided. Kim Yong-beom, the presidential policy chief accompanying the president on a visit to Brazil, attempted to complicate the issue, citing AI investment uncertainty, global semiconductor competition, and market structure as contributing factors, and arguing against blaming leveraged ETFs alone.

However, Financial Services Commission (FSC) Chairman Lee Chan-jin's remark—'I regret not lying down to block it'—directly exposed the regulator's failure and embarrassment in product approval oversight.

In the National Assembly, political views on how to handle these products are split. Some ruling party lawmakers openly call the product a 'gambling-like weapon' that destroys diversification, demanding strict reform. Others worry that a hasty delisting could damage market credibility, advocating instead for measures like raising minimum deposit requirements to reduce volatility and appeal.

To contain the escalating controversy, South Korean financial authorities have decided on a 'combination approach' to tighten controls. Starting July 31, investors must hold 30 million KRW in cash deposits to purchase or add to single-stock leveraged products.

This measure is expected to drastically reduce the number of related trading accounts and shrink trading volume by over 60%. Authorities are also studying stricter measures, such as lowering leverage ratios and restricting retail investor eligibility.

This series of events not only reflects retail investors' fear of complex financial products but also triggers deep reflection on South Korea's financial regulatory system. When 'investor protection' remains merely a slogan, who will compensate retail investors for their lost wealth and shattered trust after their accounts are wiped out in market crashes?

The row of solitary condolence wreaths in front of the National Assembly on Yeouido Island is not just a symbol of protest—it is a stern and profound questioning of the entire capital market system.