South Korea leveraged ETF volume plunges 96% after five-day rule

  • South Korean regulators introduced mandatory simulated trading for high-risk leveraged ETFs.
  • Trading volume fell 96%, while combined assets declined from $11.4 billion to $5 billion.
  • The products launched in May and faced tighter rules from July onward.

South Korean financial regulators introduced a mandatory five-day simulated trading requirement on August 19 for high-risk leveraged ETFs (funds seeking amplified daily returns) linked to Samsung Electronics and SK Hynix. Investors must use a dedicated Windows-only program for at least one hour daily over five consecutive days, trading ₩100 million in virtual funds, after meeting a ₩30 million minimum cash deposit requirement. The process has helped push trading volume to 4% of its June peak, a 96% decline, while combined assets under management fell from $11.4 billion (about NT$360 billion) to $5 billion (about NT$160 billion). August could become the first month of net outflows since the products were listed in May. The rules have reduced short-term market volatility, with the KOSPI volatility index falling from 97 in late June to around 50, but weaker trading has also raised liquidity and exit-cost concerns for remaining holders. Bloomberg Intelligence analyst Rebecca Sin said authorities have shifted from supporting the products to actively restricting them and that outflows may continue in the near term.

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