South Korea Plans Special Control Measures on Samsung and SK Hynix Leveraged ETFs as Surging Size and 92% Retail Ownership Raise Concerns

TradingKey - On June 22, Seoul time, Lee Chan-jin, Governor of the Financial Supervisory Service (FSS) of South Korea, publicly stated that authorities are studying the introduction of targeted regulatory measures for single-stock leveraged ETFs linked to Samsung Electronics and SK Hynix. Since the launch of these products at the end of May, this statement marks the first time regulators have publicly addressed the associated risks through an official press conference by the governor.

The products had a market value of approximately 4.5 trillion won at launch, which surged to 14 trillion won in less than a month, more than tripling in size. Trading data shows a daily turnover rate of 122.5%, exceeding 200% at certain times, compared with an average of just 30.2% for other leveraged and inverse ETFs over the same period. Lee Chan-jin pointed out at the press conference that the commissions paid by investors in some of these products already equal 40% to 70% of the products' market value. If the current pace of turnover continues, cumulative transaction fees could reach 5 trillion to 10 trillion won—a situation that only benefits securities firms.

Retail investors hold about 92% of these ETFs, with the majority of holders being middle-class wage earners. Lee Chan-jin admitted that the approval process was "too rushed" and expressed regret over the timing of the approval. He conceded that while the original design intention was to keep local capital in the domestic market and provide leveraged exposure to mainstream stocks, the actual outcome diverged significantly from expectations, noting that "the benefits are limited, while the side effects are increasingly severe."

Regarding follow-up regulatory controls, the FSS is coordinating with the Financial Services Commission (FSC) and the Korea Exchange (KRX). The initial directions include strengthening trading monitoring, improving credit risk control systems, enhancing investor risk disclosures, and exploring the implementation of restrictive conditions on margin trading and securities lending. The timetable for these specific measures has not yet been publicly announced.

From a macroeconomic perspective, the combined market capitalization of Samsung Electronics and SK Hynix has risen to approximately 50% of the KOSPI. The KOSPI index topped the 9,000-point mark for the first time on June 18, with a year-to-date gain of over 115%. Meanwhile, May CPI rose 3.1% year-on-year, reaching its highest level since March 2024. As heavy bonus payouts by semiconductor firms and the stock market's wealth effect intertwine with price pressures, the Bank of Korea's vigilance over inflation continues to rise.

Lee Chan-jin also disclosed that the FSS is investigating Mirae Asset's failed allocation of SpaceX shares. The investors involved ultimately received no allocated shares despite completing fund transfers and foreign exchange transactions. Regulators plan to use this case as a basis to establish clearer operating guidelines for institutions handling similar offshore investment products.

Although the two incidents differ in nature, they both raise the same question: Is the existing system providing sufficient protection for ordinary investors at a time when retail momentum-chasing sentiment is running high? Market participants also warned that once the relevant regulatory measures are implemented, they could suppress the liquidity of these products in the short term.