Regulatory authorities are freezing new single stock leveraged product launches, raising investor entry requirements and strengthening oversight after explosive growth in semiconductor-linked trading raised concerns over market volatility and potential losses.

South Korea’s financial authorities are stepping in to rein in the rapid expansion of single stock leveraged ETFs and ETNs after a surge in demand pushed volatility concerns to the forefront.

Following a market review meeting chaired by Deputy Prime Minister for Economic Affairs Koo Yun-cheol (pictured below) on 16 July, the Ministry of Economy and Finance, Financial Services Commission, Financial Supervisory Service and other related institutions announced a package of measures aimed at strengthening investor protection and stabilising markets.

The move comes after single stock leveraged products gained significant popularity following their domestic launch on 27 May. While the products were introduced partly to address concerns that Korean investors were turning to overseas markets for similar instruments with weaker domestic protections, authorities said the rapid increase in trading activity required additional safeguards.

The market capitalisation of single stock leveraged products jumped from KRW4.4 trillion (US$2.9 billion) on launch day to KRW11.9 trillion by 15 July while trading value increased from KRW10.4 trillion to KRW13 trillion over the same period.

The authorities pointed to growing concentration in major semiconductor stocks as a key concern. The combined market capitalisation share of Samsung Electronics and SK Hynix within the Kospi climbed from 34% at the end of 2025 to 52% by July 15. At the same time, major memory chip companies saw sharp swings in share prices, with annualised daily volatility reaching 113% for SK Hynix and 96% for Samsung Electronics between late May and early July.

New listings frozen

As an immediate response, regulators will temporarily suspend new listings of single stock products until market conditions stabilise. The restriction will cover single stock leveraged products as well as related products including inverse and covered-call structures.

Securities firms and asset managers will also be barred from advertising and promotional campaigns for existing single stock leveraged products.

Authorities said the measures are designed to prevent excessive competition among issuers and reduce incentives for investors to chase highly volatile products during periods of strong market momentum.

Investor protection rules will also be strengthened through tighter controls on premium rates, which measure the gap between a product’s market price and its actual asset value.

Liquidity providers will face stricter obligations, with the premium management threshold for domestic products lowered from 3% to 2%. Securities firms that intentionally or seriously fail to manage pricing gaps could face restrictions on launching new liquidity-providing operations.

Asset managers will also face greater accountability. Firms managing ETFs that repeatedly breach appropriate premium-rate standards could face restrictions on new ETF listings.

The process for designating ETFs as investment cautionary products will also be shortened, allowing regulators to respond more quickly when premiums rise significantly and fair pricing becomes difficult.

Higher entry barriers

The government is also raising the financial requirements for investors seeking exposure to single stock leveraged products.

The minimum basic deposit will increase from KRW10 million to KRW30 million and only cash will qualify toward the requirement. Previously, investors could count certain substitute securities such as stocks and bonds toward the deposit threshold.

The revised rule will apply to both domestic and overseas single stock leveraged products, with authorities aiming to prevent investors from shifting risk into foreign markets instead.

Mandatory investor education will also be expanded. The current two-hour training requirement will increase to three hours with additional case-based lessons focused on recent market conditions and potential loss scenarios.

Securities firms will also strengthen risk warnings through mobile trading platforms, including notifications highlighting losses and the risks of holding leveraged products over longer periods.

Trading rules will undergo further changes, with the minimum trading unit for domestic single stock leveraged products expected to increase from one unit to 20 units after system upgrades are completed.

Further action considered

Relevant agencies said measures that do not require regulatory changes or system development will be implemented immediately, while additional measures will roll out from August.

Securities firms that fail to complete required system changes within the deadline may face restrictions on allowing new trades in affected products.

Officials said they will continue monitoring market conditions and consider further measures if volatility remains elevated.

At the same time, the government emphasised that the move is not a retreat from capital market reform. Authorities said they will continue efforts to strengthen Korea’s investment ecosystem, including revitalising the Kosdaq market, encouraging long-term investment and expanding innovative financial products.

The latest intervention highlights the challenge facing regulators as they attempt to balance greater investor access to sophisticated products with the need to prevent leveraged instruments from amplifying market instability.

Image: G-Studio/Adobe Stock

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