South Korean single-stock leverage ETF trading volume drops 92%

Trading volume for single-stock leverage and inverse ETFs in South Korea has plummeted by approximately 92% following stricter deposit requirements. Data released by the Korea Exchange and analyzed by lawmaker Kim Yong-man shows that the average daily trading value for 16 types of these ETFs dropped from 12.25 trillion won to 990 billion won in the month following the regulatory change.

The financial authorities increased the basic deposit requirement for these products from 10 million won to 30 million won in cash, effective July 31. This led to a significant decline in turnover rates; for instance, the turnover rate for 14 leverage ETFs fell from 43.6% to 5.9%, while inverse 2X ETFs saw turnover drop from 1,110.4% to 125.0%.

Individual investors also shifted their behavior, moving from consistent net buying to a trend of net selling following the implementation of the regulation. While the decline in volume suggests a cooling of high-risk trading, concerns remain regarding a ‘balloon effect,’ where investment demand might simply migrate to other unregulated or less restricted financial products.