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Korea reins in leveraged chip ETFs after volatility spike

South Korea is freezing new single-stock leveraged ETF listings and raising cash-deposit rules after chip-linked products tied to Samsung Electronics and SK hynix drew scrutiny for amplifying market swings.

Published about 3 hours ago
reuters

South Korea to ban new listings of single-stock leveraged ETFs

wsj

South Korea Regulator Unveils Curbs on High-Risk ETFs

theinvestor

Korea puts brake on leveraged chip ETFs

businesstimes

South Korea to halt new listings of single-stock leveraged ETFs

reuters

Explainer: What are leveraged ETFs and how are they driving the AI rally?

Korea reins in leveraged chip ETFs after volatility spike
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South Korea moved to slow a hot corner of its equity market on Thursday, saying it will temporarily stop new single-stock leveraged ETF listings after products tied to Samsung Electronics and SK hynix became a focus of volatility concerns. The package came after a meeting of top financial officials from the finance ministry, Financial Services Commission, Financial Supervisory Service and Bank of Korea. wsj

The immediate curb is a listing freeze on new leveraged funds linked to individual shares. Existing products can keep trading, but regulators are also banning advertising and promotions, a signal that Seoul wants demand to cool without forcing a disorderly unwind. The Business Times reported the halt will stay in place until market conditions stabilize. theinvestor

The rules raise the bar for retail traders. Investors will need 30 million won in cash, about $20,300, to trade the products, up from a 10 million won requirement that could previously be met partly with securities. The higher deposit is due in August, while a move to lift the minimum order size from one unit to 20 units is expected in November. bloomberg

The products at issue offer two-times long or inverse exposure to Samsung Electronics and SK hynix, the two chipmakers at the center of Korea’s AI-linked stock boom and bust. Aju Press reported that 16 ETFs and two exchange-traded notes were listed on the Korea Exchange on May 27, and that program-trading sidecars have been triggered 19 times on the KOSPI since then, while marketwide circuit breakers have fired five times. cryptobriefing

Regulators are also tightening how market makers keep ETF prices close to net asset value. Seoul Economic Daily reported that the allowed disparity-management threshold for domestic products will be cut to 2% from 3%, with possible penalties including restrictions on future ETF listings for managers that breach the rules. asiae

The move is a reminder that leveraged ETFs can turn a concentrated market trend into a feedback loop. They rebalance daily to maintain target exposure, which can add buying or selling near the close and magnify swings when the underlying shares move sharply. For investors, the new rules do not remove the risk. They make access more expensive and less convenient, while leaving the central question intact: whether Korea’s chip rally can support the leverage that was built on top of it. bloomberg