SK Hynix stock was falling on Thursday, but regulators in South Korea are introducing measures that could reduce volatility in the memory-chip maker's shares.
American depositary receipts of SK Hynix ended down 13.7% at $152.31. That was largely in line with the wider chip sector and the underlying stock's move in the South Korean market, where SK Hynix fell 11.5%.
SK Hynix has been notably volatile following its blockbuster listing of ADRs on the Nasdaq market. Part of the reason is that Korean retail investors have been piling into SK Hynix and other technology stocks for much of the year, with increasing use of aggressive tools such as leveraged exchange-traded funds.
However, that could be coming to an end soon. South Korea's Financial Services Commission (FSC) said Thursday that it will suspend new listings of single-stock leveraged ETFs and triple the minimum deposit required to buy into them to 30 million won, or about $20,285, starting Aug. 5.
Leveraged ETFs own options, swaps, or other derivatives to enhance the daily moves -- up or down -- for the stock. They amplify downward moves because losses need even larger gains to get back to even, which is worsened by the fact leveraged ETFs must adjust their holdings at the end of each trading day to maintain their leverage ratio. Such rebalancing introduces a compounding effect that erodes returns.
The FSC said it would halt new listings of single-stock leveraged ETFs until market conditions stabilize. That could steady SK Hynix's Korean-listed stock, but it's not clear what effect it would have on the ADRs, which currently trade at a significant premium to the underlying shares due to the size of the U.S. investor base and obstacles to converting between the two instruments.
Barron's has written positively about the ADRs, suggesting they offer a cheaper way to play the memory-chip boom than U.S. company Micron Technology.
