Immediate Impact! South Korea Doubles Margin Requirement for Single-Stock Leveraged ETFs, Trading Volume Plummets 90%

Latest data shows that just two trading days after South Korea’s financial regulator increased the base margin requirement for single-underlying leveraged/inverse ETFs from 10 million KRW to 30 million KRW, trading volumes for related products plunged to one-tenth of pre-rule levels, as retail investors collectively took profits, rapidly cooling market overheating.

According to data released Monday (August 3) by the Korea Exchange (KRX), the combined trading value of 16 single-stock leveraged/inverse ETFs tracking assets such as Samsung Electronics and SK Hynix was approximately 1.2 trillion KRW. This compares to 12.4 trillion KRW on the last trading day before the margin hike (July 30), representing only 10% of previous levels. It also marks a further halving from the first day of the new rule (July 31), when volume stood at around 3 trillion KRW.

On Friday (July 31), no individual product exceeded 1 trillion KRW in trading value. The largest product, the KODEX SK Hynix Leverage ETF, recorded 422.6 billion KRW in trading, down to one-eighth of its July 30 level of 3.6 trillion KRW. The SOL SK Hynix 2x Inverse ETF fell from over 5 trillion KRW to 180.7 billion KRW. Trading volume for the KODEX SK Hynix Leverage ETF further declined to 44 million shares, one-quarter of the previous trading day’s volume.

Retail investors recorded net sell-offs for two consecutive days. On that day, they net sold 23.5 billion KRW of the KODEX SK Hynix Leverage ETF, 30.3 billion KRW of the SOL SK Hynix 2x Inverse ETF, and 13.6 billion KRW of the KODEX Samsung Electronics Leverage ETF. Among the 16 ETFs, the highest net buy amount was merely 200 million KRW.

On Monday, Samsung Electronics and SK Hynix closed down 8.76% and 8.79%, respectively. Fourteen leveraged ETFs ended lower, declining between 13% and 18%, while inverse ETFs rose—those tracking Hynix gained about 23%, and those tracking Samsung rose about 12%.

Although South Korea’s regulatory ‘deleveraging’ move had an immediate effect, the sharp decline in the underlying stocks of Samsung and SK Hynix suggests that after closing the door on retail leverage, fundamental factors and foreign capital flows will become the primary drivers of future market movements.