South Korea's financial regulator has enforced stricter investment thresholds for single-stock leveraged and inverse ETFs, causing a sharp contraction in related trading activity. Just two days after the base margin requirement was raised from 10 million won to 30 million won, trading volume plummeted to one-tenth of the level seen before the new rules took effect.
A large number of retail investors rushed to cash in gains, quickly cooling the overheated market. Data from the Korea Exchange on August 3 showed that the combined trading volume of 16 single-stock leveraged/inverse ETFs, which track Samsung Electronics and SK Hynix as underlying assets, stood at approximately 1.2 trillion won. On the last trading day before the margin hike (July 30), volume had reached 12.4 trillion won, meaning the current level is just one-tenth of that. Even compared to the first day of the new rules (July 31, with about 3 trillion won), volume has more than halved.
No single product recorded trading volume exceeding 1 trillion won on that day. The largest product, the KODEX SK Hynix single-stock leveraged ETF, saw volume of 422.6 billion won, down to one-eighth of its 3.6 trillion won on July 30. The SOL SK Hynix futures single-stock 2x inverse ETF, which had recorded over 5 trillion won in volume on July 30, saw only 180.7 billion won on August 3.
The decline in share volume was equally pronounced. The KODEX SK Hynix single-stock leveraged ETF saw its trading volume fall from 488.89 million shares on July 30 to 116.92 million shares on July 31, and further shrink to 44 million shares on August 3, a single-day drop to one-quarter of the previous day's level.
After the new rules took effect, retail investors maintained a net selling position for two consecutive days. On August 3, individuals net sold 23.5 billion won of the KODEX SK Hynix single-stock leveraged ETF, 30.3 billion won of the SOL SK Hynix futures single-stock 2x inverse ETF, 13.6 billion won of the KODEX Samsung Electronics single-stock leveraged ETF, and 6.5 billion won of the TIGER SK Hynix single-stock leveraged ETF. Among the 16 products, the highest net buying by individuals was just 200 million won, for the PLUS Samsung Electronics single-stock leveraged ETF.
On the same day, shares of Samsung Electronics and SK Hynix fell sharply by 8.76% and 8.79%, respectively, with 14 single-stock leveraged ETFs closing down between 13% and 18%. In contrast, inverse ETFs tracking Samsung Electronics and SK Hynix recorded gains of around 12% and 23%, respectively.
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