Korea Tightens Rules on Single-Stock Leveraged ETFs After 50% Underlying Drop
South Korean regulators tightened rules on single-stock leveraged ETFs in mid-July after the first batch of 16 products tracking Samsung Electronics and SK Hynix, listed on May 27, 2026, suffered heavy losses. Underlying shares fell as much as 50% since June 25, while 2x leveraged ETFs saw maximum drawdowns of 80%. Investors accumulated floating losses of about 32 trillion won (RMB 152.4 billion) since June 22, averaging RMB 220,000 per account across 700,000 participants. Measures include banning advertising, raising minimum trading units and margin requirements, and suspending new approvals.
On May 27, 2026, the first batch of 16 single-stock leveraged and inverse ETFs tracking Samsung Electronics and SK Hynix began trading on the Korea Exchange. Owing to low entry thresholds and ease of use, these products quickly attracted large numbers of retail investors, who account for more than 90% of holdings, many of them younger investors with modest asset bases. In terms of product design, investors only need to enter a code and price to buy or sell; leverage adjustments are handled automatically by the fund manager, with no need to understand complex concepts such as margin or strike prices.
Since June 25, the underlying shares of Samsung Electronics and SK Hynix have fallen by as much as 50%, while the corresponding 2x leveraged ETFs have recorded maximum drawdowns of 80%. Estimates suggest that since June 22, Korean investors have accumulated floating losses of approximately 32 trillion won (about RMB 152.4 billion) on leveraged ETFs tied to these two stocks, with average floating losses of about RMB 220,000 per account across 700,000 participants. Amid strong calls from investors to abolish single-stock leveraged ETFs, South Korea introduced a series of regulatory measures in mid-July, including a blanket ban on advertising for such products, raising the minimum trading unit from 1 share to 20 shares, increasing the minimum margin requirement from 10 million won to 30 million won with cash-only collateral, and suspending approval of new single-stock leveraged ETFs.
These products are synthetic ETFs that achieve leverage through derivatives. Most of the fund's assets are allocated to cash-type collateral such as government bonds, with returns generated primarily through total return swap over-the-counter derivative contracts with investment banks. The fund pledges its underlying assets as collateral, and the investment bank pays the fund daily returns equal to twice the performance of the underlying. In addition, the products employ a daily leverage reset mechanism, which forcibly rebalances risk exposure to the set multiple after each trading day's close, generating mechanical drag in choppy and declining markets.