"Three Times, Not Two"... Overseas Leveraged ETFs Draw Retail Investors to U.S. Stocks, Trading Volume Tops $9 Billion

[Financial News] After financial regulators began enforcing rules on single-stock leveraged ETFs, trading in products tied to Samsung Electronics and SK hynix declined. However, demand for leveraged investing itself appears to have shifted to overseas 3X index ETFs. Trading has become more concentrated in products that are not subject to the regulations.
According to KSD on the 21st, domestic investors traded $19.01309 billion worth of the top 50 overseas stocks between July 31, when the stricter initial deposit rule for single-stock leveraged ETFs took effect, and the 19th of this month. Of that total, four 3X leveraged ETFs accounted for $7.75372 billion, or 40.8%. Seven 2X leveraged ETFs recorded $825.76 million, representing 4.3%.
Compared with the period before the regulation, the tilt toward 3X leveraged ETFs became even stronger. From May 27 to July 30, the day before the rule took effect, the four 3X leveraged ETFs accounted for 36.6% of trading volume among the top 50 overseas stocks. Over the same period, the seven 2X leveraged ETFs made up 7.4%. After the rule was implemented, the share of 2X leveraged ETFs fell from 7.4% to 4.3%, while the share of 3X leveraged ETFs rose from 36.6% to 40.8%.
The decline in 2X leveraged trading appears to have been affected by the higher initial deposit requirement for single-stock leveraged ETFs. The regulated products included not only domestic stocks such as SK hynix, but also 2X single-stock leveraged ETFs tracking overseas names such as Tesla. Micron Technology, SanDisk, and Tesla 2X leveraged ETFs ranked 9th, 17th, and 20th, respectively, in overseas trading volume before the rule took effect. Afterward, they fell to 46th, 42nd, and 50th.
By contrast, the share of 3X leveraged ETF trading expanded. The trend is being interpreted as a shift in leveraged investment demand toward 3X leveraged ETFs, which were not included in the latest regulation.

Meanwhile, the Direxion Daily Semiconductor Bull 3X ETF (SOXL), which tracks the Philadelphia Semiconductor Index at three times leverage, attracted the heaviest trading. From July 31, after the rule took effect, to August 19, domestic investors traded $6.54357 billion worth of SOXL, or about 9.1191 trillion won, making it the most traded overseas stock product. That figure exceeded the combined trading value of the 2nd through 10th-ranked products, which totaled $4.99056 billion. SOXL's share of the top 50 overseas stocks by trading volume also rose from 30.6% before the rule to 34.4% afterward.

[email protected] Han Seung-gon Reporter