Even the Enforcement Decree Was Amended to Open Up ETFs, While KOSDAQ Faces a Delisting Blade [One Month Since the Launch of Leveraged ETF3]

[Financial News] A single-stock leveraged exchange-traded fund (ETF), introduced after the financial authorities even revised the enforcement decree, has become the center of controversy over market overheating just one month after its launch. In January, the Financial Services Commission (FSC) began work on regulatory changes to introduce single-stock ETFs and revised the enforcement decree of the Financial Investment Services and Capital Markets Act in April. The Korea Exchange also adjusted its listing rules, and on May 27 the country's first single-stock leveraged ETF was listed.
Samsung Electronics and SK hynix leveraged ETFs saw heavy short-term trading, with daily trading value exceeding assets under management (AUM). The Financial Supervisory Service said it would strengthen risk management measures amid concerns over greater market volatility. At the same time, KOSDAQ sharply tightened delisting standards, fueling criticism that policymakers were "loosening rules for investment products while raising the bar for remaining listed on KOSDAQ."
■ Concentration in Samsung Electronics and SK hynix leveraged products pushes turnover above 110%
According to the investment banking industry on the 29th, more than half of the top 10 ETFs by trading value in Korea on the 26th were single-stock leveraged ETFs tied to Samsung Electronics and SK hynix.
The KODEX SK hynix single-stock leveraged ETF recorded trading value of 629.6 billion won, about 230 billion won more than the 405.79 billion won posted by KODEX 200, Korea's largest ETF. Other major names included the TIGER SK hynix single-stock leveraged ETF at 326.16 billion won, the KODEX Samsung Electronics single-stock leveraged ETF at 248.22 billion won, and the TIGER Samsung Electronics single-stock leveraged ETF at 131.7 billion won.
The KODEX SK hynix single-stock leveraged ETF saw about 630 billion won traded in a single day, surpassing its market capitalization of roughly 558 billion won and pushing its daily turnover rate to about 113%. That is 3.7 times the average turnover rate of 30.2% for domestic equity leveraged and inverse ETFs.
Market watchers say the overheating has intensified as very short-term funds betting on semiconductor strength have concentrated in single-stock leveraged ETFs linked to Samsung Electronics and SK hynix.
Lee Jae-won, a researcher at Yuanta Securities, said, "We currently estimate that the sharp volatility in the stock market is being driven by leveraged ETFs." He added, "As single-stock leveraged ETFs and passive flows into ETFs concentrated in large-cap stocks overlap, selling pressure is being amplified significantly even by small noises." He went on to say, "Momentum-driven funds that had previously flowed into KOSDAQ growth stocks are now being reallocated to large semiconductor names, and as earnings estimates continue to rise on the back of a strong semiconductor cycle, this concentration of funds could persist and deepen."
In fact, after the leveraged ETFs were launched, the average intraday volatility of Samsung Electronics and SK hynix widened from 4.4% to 6.8% and from 5.1% to 7.8%, respectively. Net buying by individual investors also concentrated in Samsung Electronics, SK hynix, and single-stock leveraged ETFs.
Jeon Kyun, a researcher at Samsung Securities, said, "It is true that trading volume and volatility have increased, but it is difficult to conclude that this is solely due to leveraged products." He added, "Since the listing of single-stock leveraged ETFs, both trading volume and volatility have expanded, the market capitalization of related products has more than quadrupled in just a month, and individual investors have net bought about 9 trillion won, so the pace of fund inflows has been faster than expected."
■ Cooling measures as overheating concerns grow
The Financial Supervisory Service recently acknowledged concerns that trading in single-stock leveraged ETFs is overheating and said it would strengthen risk management measures to address the risk of greater market volatility.
At a meeting on the 22nd, Lee Chan-jin, Governor of the Financial Supervisory Service, said, "It is true that we prepared this in a hurry," adding, "I personally regret and reflect on whether we should have stopped it, even if it meant lying down in front of it." He also said, "The side effects have become too large, and I have a lot to think about."
The Korea Exchange also postponed the listing of single-stock weekly options, which had originally been scheduled for the 29th, citing recent market conditions. The exchange said the move was "to ensure stable market operation and the smooth introduction of the product." Market participants also interpreted the decision as reflecting concerns over recent volatility surrounding single-stock leveraged ETFs.
■ KOSDAQ delisting standards sharply tightened
Against this backdrop, the financial authorities will significantly tighten KOSDAQ delisting standards starting in July. The key measures are to gradually raise market capitalization thresholds and strengthen delisting rules for low-priced stocks and companies that violate disclosure requirements.
However, criticism is growing over policy consistency as authorities simultaneously push ahead with both the introduction of high-risk investment products through amendments to the enforcement decree and stricter listing maintenance requirements for growth companies. In particular, technology-based listing companies in biotechnology and artificial intelligence (AI) often face large swings in earnings and market capitalization during their growth phase, raising concerns that uniform listing maintenance standards could weaken financing conditions for innovative firms.
An official from the securities industry said, "The market has become more confused as policies to loosen ETF rules and boost trading while raising the bar for remaining listed on KOSDAQ are being pursued at the same time." The official added, "It is not enough to simply say the policy goals are different. Investors also need a message that explains why this direction is necessary."

dschoi@fnnews.com Choi Du-seon Reporter