South Korea reviews tighter controls on single-stock leveraged ETFs as losses mount

South Korea’s review of single-stock leveraged ETFs has intensified after President Lee Jae-myung said regulators should quickly improve the rules following criticism that the products amplified volatility in Samsung Electronics and SK Hynix shares. The Financial Services Commission said the products had been introduced to curb capital outflows, noting that overseas stock net investment by Korean retail investors fell from about $40 billion last year to $2.8 billion in the first half of this year. The debate comes after heavy retail participation and mounting losses in chip-linked leveraged funds, with lawmakers from both the ruling People Power Party and the opposition Democratic Party pressing for closer oversight. Data submitted by the Korea Financial Investment Association showed 1,162,751 investors completed mandatory basic leverage training in the first half, up about 19-fold from 60,972 a year earlier, while 690,209 completed the advanced course required for single-stock leveraged trading from April through June. From their May 27 launch through July 16, 16 single-stock leveraged and inverse ETFs tied to Samsung Electronics and SK Hynix recorded net inflows of 13.4133 trillion won ($9.63 billion), but sharp declines in the chip stocks drove large losses in the funds. Reuters also reported that margin loans reached a record 38.63 trillion won on June 24 and total investor debt topped 60 trillion won by the end of May, underscoring wider concern about leveraged retail speculation. Authorities have already suspended new listings and will raise the minimum cash deposit from August 5, while officials say additional safeguards may be considered.