The South Korean government is cracking down on “gambling addicts for everyone,” aiming to cap retail investors’ per-stock leverage at 20%

Korea’s Financial Services Commission Chairman Lee Eok-won said at a roundtable discussion today that if demand for a single-stock leveraged product cannot be calmed, the regulator will review setting an individual investment cap. The main option currently being studied is to cap single-stock leveraged investing at within 20% of an individual’s total financial investment amount. The same day, the KOSPI triggered this year’s 8th trading halt due to circuit breaker, with the close plunging 10.84%. The two underlying assets of leveraged products—Samsung Electronics and SK hynix—fell 13.39% and 14.65%, respectively.

(Background: Korea’s FSC expresses deep regret for allowing Samsung and SK hynix leveraged ETFs to proceed; 92% of holders are retail investors, and the regulator is also working on control measures.)

(Additional context: Truth》Over half of liquidations in the Korean stock market are among young people! But are they crazy about leverage, not greed?)

Table of contents

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• How is the 20% calculated?
• Initial margin deposit goes live on July 31 in advance
• The market drops hard and fast

Key takeaways

• Korea is considering limiting single-stock leveraged investment to within 20% of an individual’s total financial investment amount; at 100 million KRW, the maximum is 20 million KRW
• Base initial margin deposit is raised to 30 million KRW; originally set for August, it is moved up to July 31
• On the same day, the KOSPI circuit breaker closed down 10.84% to 6,023.63 points; Samsung Electronics fell 13.39% and SK hynix fell 14.65%

Regulatory authorities are still meeting today to discuss how to cool down leverage for retail investors, but the market already took action earlier that same morning. At a roundtable with the asset management industry on July 28, Korea’s Financial Services Commission Chairman Lee Eok-won said that if demand for a single-stock-related product cannot sufficiently settle, the commission will proactively study and prepare additional measures, including further raising investment requirements and setting a cap on how much individuals can invest.

Just hours into his remarks, at 10:13 a.m. that day, the KOSPI triggered this year’s 8th circuit breaker. Trading across the market was halted for 20 minutes. At the close, it tumbled 732.12 points, down 10.84% to 6,023.63 points. In this leveraged-products selloff, the two underlying targets closed down 13.39% for Samsung Electronics and 14.65% for SK hynix.

How is the 20% calculated?

The proposal being discussed is called “individual net volume management.” The approach is to restrict the investment amount in single-stock leveraged products to a certain percentage of the total investment amount of an individual’s financial investment products, and the number the Financial Services Commission is putting up for discussion is 20%.

Translated into real-world terms, it’s straightforward. If an investor’s total financial investment products amount to 100 million KRW (about $68k), then at most only 20 million KRW (about $13.5k) can be placed into a single-stock leveraged product. The remaining 80% must be put elsewhere.

What’s interesting is where this figure comes from. On July 9, the Financial Services Commission publicly denied rumors about 20%. At the time, a document circulating online titled “Government leveraged ETF regulatory plan” claimed the initial margin deposit would be raised from 10 million KRW to 50 million KRW, require weekly classes, and limit daily price swings to 20%. The FSC’s response was that “the content circulating online is not true.” Three weeks later, the chairman himself cited the 20% figure at the roundtable, though he reframed it—from a price limit to a position limit.

Initial margin deposit moved up to July 31

Lee Eok-won said the commission will prioritize closely monitoring the policy effects of supplementary measures such as strengthened initial margin deposit requirements, which take effect starting July 31. Under this margin requirement, before investors buy or add to a single-stock leveraged ETF, they must have 30 million KRW (about $20k) in cash in their accounts—three times the previous 10 million KRW. The measure was originally scheduled for August because the securities industry needed time to develop systems; it has been brought forward to the end of July.

In addition to the margin deposit, several items are also in line:

• Completion requirements for scheduled mock trading and retraining/education
• Introduction of a minimum threshold of prior investment experience for a certain period
• Requiring the asset management industry to stagger rebalancing timing to avoid concentrating all activity before the close
• Industry self-regulatory rules for liquidity provision

Lee Eok-won pointed out that if the rebalancing of a single-stock leveraged product is concentrated just before the close, it will amplify market volatility. He also mentioned another phenomenon: the reason trading volumes for these products surge so high is related to heavy participation by liquidity providers (LPs), with the number of LPs for a single stock sometimes exceeding 20.

The market drops hard and fast

These single-stock leveraged and inverse (2x) ETFs began trading on May 27, with the underlying assets being Samsung Electronics and SK hynix. The listing size was 68k KRW, setting an unprecedented record for the history of Korean ETFs and ETNs for both listing scale in a day. By June 19, retail investors had accumulated net purchases of leveraged ETFs of about 8.2 trillion KRW, while inverse (2x) about 0.3 trillion KRW. Broker estimates put the combined reasonable net asset size for the leveraged ETFs backed by these two underlying assets at roughly 5.5 trillion KRW.

When it comes to 2x leverage: if the underlying falls 13% to 15%, then the product-side daily loss would fall in the range of 26% to 29%. The “overheating” that the Financial Services Commission is worried about has been partly handled by the market through a circuit breaker.

Today’s fuse came from two directions: first, U.S. stocks semiconductor names such as Nvidia were hit hard on the New York session; second, China’s CXMT surged over 465% on its first day of listing, raising concerns about semiconductor supply and demand in Korea. On July 20, Morgan Stanley had just cut its pessimistic target for the KOSPI to 6,000 points, citing exactly this: after leveraged ETFs pulled the market higher, trading fatigue appeared. Eight days later, the index closed at 6,023.63 points.

Frequently asked questions

What is the 20% investment cap for single-stock leveraged investing in Korea?

This is the “individual net volume management” plan being studied by Korea’s Financial Services Commission. It limits the investment amount in a single-stock leveraged product to within 20% of an individual’s total financial investment products amount. For example, if the total is 100 million KRW, the maximum is 20 million KRW. It has not been finalized yet.

Why have Korean single-stock leveraged ETFs been targeted?

These ETFs launched on May 27, with underlying assets of Samsung Electronics and SK hynix. The listing size was 13.5k KRW, setting a record in Korea. By June 19, net purchases by individuals had reached 8.2 trillion KRW—far above the brokers’ estimate of a reasonable scale of 5.5 trillion KRW—while most holders are retail investors.