Trading value plunges 92% after leveraged ETFs tied to Samsung Electronics and SK hynix are regulated

[Financial News] Trading in single-stock leveraged and inverse exchange-traded funds (ETFs) based on Samsung Electronics and SK hynix fell sharply after tighter deposit regulations took effect. Both average daily trading value and turnover ratios plunged within a month of the rules' implementation.
An analysis of data submitted by the Korea Exchange (KRX) to the office of Kim Yong-man, a Democratic Party of Korea lawmaker on the National Policy Committee, found on the 27th that the average daily trading value of 16 single-stock leveraged and inverse ETFs fell by about 92%, from 12.25 trillion won in the month before the regulations took effect to 900 billion won in the month afterward.
Starting July 31, the financial authorities raised the basic deposit requirement for single-stock leveraged and inverse products from 10 million won to 30 million won in cash. Kim's office compared 22 trading days before the regulations with the 21 trading days afterward, including the day the rules took effect.
The average daily trading value of 14 leveraged ETFs fell 91%, from 8.64 trillion won to 800 billion won. The two inverse 2x ETFs also saw their trading value decline 95%, from 3.6 trillion won to 190 billion won.
Turnover ratios also dropped sharply. The average daily turnover ratio for the 14 single-stock leveraged ETFs, excluding the two inverse 2x ETFs, fell from 43.6% before the regulations to 5.9% afterward.
The average daily turnover ratio of the two single-stock inverse 2x ETFs also dropped significantly, from 1,110.4% to 125.0%.
The decline in trading was not limited to the period immediately after the regulations took effect. The average daily trading value of the 14 single-stock leveraged ETFs, excluding the two inverse 2x ETFs, stood at 6.44 trillion won from July 27 to 30, just before the rules were implemented, but fell to 870 billion won in the first week afterward.
Average daily trading value then reached 620 billion won in the second week, 790 billion won in the third week and 600 billion won in the fourth week. It fell further to 530 billion won on Aug. 31, the final trading day.
Retail investors recorded average weekly net buying during the five weeks before the regulations took effect. However, they switched to net selling of 1.0706 trillion won on July 31, the day the rules were implemented, and continued to record weekly net selling afterward, except from Aug. 24 to 28.
Still, it is difficult to conclude that investor protection has improved solely because trading has declined. There are also concerns about a so-called "balloon effect," in which investment demand shifts to other products not subject to the regulations.
Kim said, "The fact that trading has declined alone does not mean investor protection has been achieved," adding, "Going forward, the government must continue to monitor the market, including whether the effects of the deposit regulations will last longer and whether risks shift to products that remain outside the regulations."

[email protected] Han Seung-gon Reporter