Single-stock leveraged ETFs approved for listing in South Korea, with Samsung Electronics and SK Hynix drawing significant attention

Financial authorities have approved the domestic listing of leveraged index products based on a single underlying asset. As for high-risk products that track twice the price of Samsung Electronics and SK Hynix stocks, trading in the domestic stock market may start as early as May 22.

On April 21, the Financial Services Commission said that the amendment to the “Capital Market Act Enforcement Decree,” which includes the above content, was approved at a State Council meeting. This revision will allow single-asset listed index funds and listed index securities that are based solely on a single domestic high-quality stock to be listed domestically. Previously, due to the principle that listed index funds must diversify their investments across multiple assets, the domestic market effectively limited the launch of products that track only a single specific company. However, in overseas markets—especially the United States and Hong Kong—single-asset leveraged products have already been traded, and there has been an ongoing view that this has led to outflow of domestic investment demand.

The eligible underlying assets do not include any arbitrary asset. They are limited to representative domestic high-quality stocks that meet certain standards, such as having an average market capitalization weighting of 10% or more and an average trading value weighting of 5% or more. Under the current standards, Samsung Electronics and SK Hynix meet the requirements. The amendment will be announced and will take effect simultaneously on April 28. After that, following securities report review and Korea Exchange listing review, the products are expected to be able to be actually listed and traded starting from May 22 of next month. The financial authorities expect that this move will narrow the institutional gap with overseas markets, improve the attractiveness of the domestic capital market to investors, and also ease the outflow of funds by domestic investors.

However, the price volatility of this product is far higher than that of a typical listed index fund, and the risk of loss is also greater. Because its structure tracks twice the daily return, when the direction is correct, gains may be amplified, but when movements occur in the opposite direction, losses can also expand rapidly. In particular, when held for multiple days, the effects of compounding may have adverse impacts, causing a large discrepancy between the cumulative return of the underlying assets and the actual product return. Considering this risk, the financial authorities require that the product name clearly reflect characteristics such as single-asset exposure, leverage, and inverse exposure—not simply using the term “listed index fund.” In addition to the original 1-hour pre-trading education, investors must also complete an additional 1-hour advanced education before they can trade. The education course also includes tests and checklists to confirm understanding of negative compounding effects, leverage effects, and deviation-rate risk.

The regulatory framework will also be adjusted for both domestic and overseas products. Going forward, when investing in overseas-listed single-asset leveraged listed index funds and listed index securities, investors will also need to complete the same advanced education. The 10 million Korean won basic initial margin requirement that previously applied only to domestically listed leveraged products will also be applied to overseas products. The financial authorities’ policy is to reduce regulatory asymmetries between domestic and overseas products through this move. In addition, together with the Korea Exchange, they will revise derivatives market regulations to expand the option expiration date range and the scope of underlying assets. Previously, only stock index options were allowed; going forward, cycle options based on individual stocks and listed index funds may be introduced. Individual-stock cycle options are planned to begin on June 29, and cycle options based on listed index funds are expected to be launched for the first time in the second half of the year. This trend could develop in the direction of broadening the variety of products in the domestic capital market. At the same time, as more high-risk short-term investment products are added, investors’ understanding levels and their ability to manage losses are expected to become key variables for the stable operation of the market.