The Bank of Korea (BOK) has issued a formal warning regarding single-stock leveraged exchange-traded funds (ETFs) tied to Samsung Electronics and SK Hynix. The central bank stated that the expanding investment in these ETFs could intensify market concentration, raise stock price volatility, and increase financial risks for individual investors. This warning reflects a change in the BOK's stance, contrasting with its June 24 Financial Stability Report which initially suggested a "limited" market impact from such ETFs. The shift follows concerns voiced by Financial Supervisory Service Governor Lee Chan-jin, who expressed regret over the ETFs' approval, stating that while they did little to bring funds back from overseas, their side effects were substantial.
The BOK's concerns stem from the significant market presence of Samsung Electronics and SK Hynix. As of June 24, these two companies accounted for 55.3% of the securities market's capitalization, up from 36.1% at year-end. Their trading volume share also dramatically increased from 27.9% to 63.5% over the same period. The BOK noted that the expansion of single-stock leveraged ETF investment intensifies this concentration. These 2x daily leveraged products aim to deliver twice the daily return of their underlying stock, meaning a 3% rise in Samsung could lead to a 6% gain for the ETF, and a 3% fall could result in a 6% loss.
The central bank highlighted that these ETFs can amplify stock price volatility through mechanisms like daily rebalancing and cash-futures arbitrage trading. When stock prices adjust, not only do individual investors' losses expand, but increased redemptions or position rebalancing can further amplify volatility. The ETFs, approved in April 2026, saw assets under management surge from approximately $3 billion at launch to around ₩14 trillion ($9.1 billion) by mid-June 2026. A significant concern is that 92% of holders in these ETFs are retail investors, many of whom have experienced steep losses during market downturns, despite passing required exams. The BOK intends to strengthen monitoring and inspection of the impact of these ETFs on the stock market and financial system, and will consult with relevant authorities to address the associated risks.
In response to growing concerns, South Korean regulators have implemented measures to tighten restrictions on these leveraged chip ETFs. These include tripling the minimum cash deposit requirement for investors to ₩30 million ($20,300) from ₩10 million, with only cash deposits now counting towards this requirement. New listings of similar products will be temporarily suspended, and there will be a blanket ban on advertising for single-stock leveraged products. Additionally, the minimum trading unit for these ETFs will be increased to 20 shares from the current one-share increment, aiming to dampen trading activity. These measures were announced after a meeting of top financial policymakers and followed President Lee Jae Myung's order for swift action to address the concerns.
