Korean Lawmaker Calls for Delisting of Samsung and SK Hynix Leveraged ETFs, Claims KOSPI Has 'Become a Casino'

07/06 10:20

On July 6, the regulatory controversy surrounding single-stock leveraged ETFs in South Korea continues to escalate. Ahn Cheol-soo, a lawmaker from the ruling People Power Party and former presidential candidate, publicly urged for strong measures, including delisting, against single-stock leveraged ETFs tracking Samsung Electronics and SK Hynix, stating that the Korea Composite Stock Price Index (KOSPI) has 'already become a casino.' Ahn noted that the funds flowing into the leveraged ETFs for Samsung Electronics and SK Hynix have reached 212 trillion won, with the two companies accounting for about 60% of KOSPI's total market capitalization. The combination of high-weight stocks and leveraged funds has amplified market volatility. This year, the South Korean stock market has triggered the 'circuit breaker mechanism' 31 times (pausing program trading) and activated the halting mechanism 5 times, with the KOSPI panic index once soaring to a historic high of 90.8. South Korea launched its first domestic single-stock 2x leveraged ETFs at the end of May this year, aimed at attracting high-risk trading demand back to the domestic market. However, after the products were launched, severe price deviations occurred due to daily rebalancing mechanisms and liquidity issues. In early June, a leveraged ETF tracking SK Hynix surged about 50% in a single day, while the underlying stock fell nearly 8% during the same period, with the fund's secondary market price at one point trading at a premium of up to 86% over its net asset value, which quickly disappeared the next day, leading to a sharp drop of about 27% in the ETF. As market volatility intensifies, both the Bank of Korea and financial regulatory agencies have recently signaled a more cautious regulatory stance. The Bank of Korea warned that the continued expansion of single-stock leveraged ETFs could further increase market concentration, exacerbate market volatility, and amplify the risk of losses for retail investors. The South Korean National Assembly has now initiated a review of such products, discussing further tightening of regulatory measures and even pushing for the delisting of related products.

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