South Korea will take further steps to curb stock market volatility as retail trading activity in single-stock leveraged exchange-traded funds (ETFs) shows signs of slowing following a series of regulatory measures, according to Reuters.
Finance Minister Koo Yun-cheol said on Tuesday that authorities would move swiftly to implement restrictions announced last week to rein in speculative trading in single-stock leveraged ETFs. Speaking at a televised cabinet meeting, Koo said the government remained committed to maintaining stability in financial markets.
The latest measures build on an earlier round of restrictions introduced two weeks ago, which regulators judged insufficient to cool a surge in retail participation in the high-risk investment products.
Among the new rules is a proposal to cap investments in single-stock leveraged ETFs at 20% of an individual's total investment assets. The restriction is aimed at limiting excessive exposure to highly volatile products that track the performance of a single stock using leverage.
The tighter regulations appear to have reduced trading activity in the sector. According to Korea Exchange data cited by Reuters, daily trading volume in the TIGER SK Hynix single-stock leveraged ETF declined to 291 billion won ($203.5 million) on Monday from 482 billion won on Friday, after having exceeded that level significantly the previous day.
Trading in the TIGER Samsung Electronics single-stock leveraged ETF also dropped sharply. Daily turnover fell to 234 billion won on Monday from 511 billion won on Friday, following a peak of 1.4 trillion won on Thursday, according to the exchange data.
Market participants believe the regulatory steps may already be easing pressure on the broader market.
Han Ji-young, an analyst at Kiwoom Securities, said the decline in leveraged ETF trading appears to have contributed to lower day-to-day volatility in the benchmark KOSPI index, although he noted that more time would be needed to fully assess the impact.
Han also pointed to a significant decline in the share of leveraged ETF trading within the broader KOSPI market. Trading volumes in these products accounted for 33.4% of total KOSPI turnover on July 30 but fell to 6.6% on July 31 and further to 5.4% on August 1.
The two ETFs, which are the largest among roughly a dozen single-stock leveraged ETF listings in South Korea, had experienced exceptionally strong retail demand earlier this summer. Their trading volumes reached record highs in late June, with the TIGER SK Hynix ETF recording 3.9 trillion won in turnover and the TIGER Samsung Electronics ETF reaching 3.6 trillion won.
South Korean regulators have stepped up scrutiny of leveraged investment products amid concerns that speculative retail trading could amplify volatility in the country's equity markets.
