Trading volume of 16 single-stock leveraged and inverse ETFs in South Korea fell to 919.8 billion won on the 5th, marking the first time below 1 trillion won since their listing on May 27, according to Korea Exchange data. The decline follows financial authorities raising the basic deposit requirement from 10 million won to 30 million won starting on the 31st of last month. The regulatory tightening aimed to curb speculative trading in these high-risk products concentrated in top market-cap stocks.
Trading Volume Dropped 93% in Four Days After Regulation
The 16 products recorded total trading volume of 12.4485 trillion won on the 30th of last month, one day before the regulation took effect. Volume plunged to 3.1518 trillion won on the 31st when the new deposit rule started, then continued declining to 1.3872 trillion won on the 3rd and 1.2556 trillion won on the 4th. On the 5th, the 919.8 billion won figure represented a 93% drop from pre-regulation levels.
Their share of total ETF trading volume stood at 5.7% on the 5th, up slightly from 5.4% on the 3rd and 4.5% on the 4th, but far below the 30-40% range recorded before the regulation. Total ETF trading volume was 15.9 trillion won on the 5th, down from 17.8409 trillion won on the 3rd and 19.1204 trillion won on the 4th. The ratio of trading volume to market capitalization, an indicator of product turnover rate, contracted to 11.4%.
Individual Investors Net Sold Most Products Except One
Individual investors net purchased 6.8 billion won of SOL SK Hynix Futures Single Stock Inverse 2X, but net sold most other products. They sold 56.7 billion won of KODEX SK Hynix Single Stock Leverage, the second-highest selling amount among all ETFs. KODEX and TIGER Samsung Electronics Single Stock Leverage saw net selling of 23.2 billion won and 6.2 billion won respectively.
Kim Jae-seung, researcher at Hyundai Motor Securities, stated: "Individual investors' interest in single-stock leveraged products is declining rapidly after the regulation. Since the 31st of last month, funds concentrated in the top two market-cap companies are gradually moving to other sectors and strategies due to the early implementation of strengthened investment requirements for single-stock leveraged products."
Industry Figures Discuss Potential Natural Decline
Bae Jae-gyu, CEO of Korea Investment Management, previously argued that single-stock leveraged products "should be allowed to die naturally, not delisted." Bae, who unusually posted then deleted a message saying "do not invest" related to the single-stock leverage issue, stated: "It's possible with just a little help from asset manager LPs (liquidity providers) and some institutional support. I still want to say: not doing it is the best option."
FAQ
What happened to Korean single-stock leveraged ETF trading volume on the 5th?
Trading volume of 16 single-stock leveraged and inverse ETFs fell to 919.8 billion won on the 5th, the first time below 1 trillion won since their May 27 listing.
Why did the trading volume drop so sharply?
Financial authorities raised the basic deposit requirement from 10 million won to 30 million won starting on the 31st of last month, causing volume to plunge 93% from 12.4485 trillion won on the 30th to 919.8 billion won on the 5th.
How did individual investors respond to the regulation?
Individual investors net sold most products, including 56.7 billion won of KODEX SK Hynix Single Stock Leverage, with only SOL SK Hynix Futures Single Stock Inverse 2X seeing net buying of 6.8 billion won.
