Backlash over leveraged chip ETFs persists despite tighter rules

The benchmark KOSPI, along with shares of Samsung Electronics and SK hynix, is displayed at Hana Bank's dealing room at the bank's heaquarters in Seoul, Monday. Yonhap

"Why are they penalizing only retail investors? If regulators can't fix the problem, they should just delist these products. They're wreaking havoc on the market," one user recently wrote on a Naver stock investing community.

"I've lost nearly 60 percent investing in these leveraged ETFs (exchange-traded funds) myself, but these measures won't do anything to restore order to the market," another wrote.

The comments reflect mounting frustration among retail investors after financial authorities last Thursday tightened trading rules for single-stock leveraged ETFs tied to Samsung Electronics and SK hynix.

The newly announced measures raised the minimum deposit requirement to 30 million won ($20,200) from 10 million won, and required investors to fully fund purchases in cash. Previously, investors could meet up to 70 percent of the 10 million won deposit requirement with the value of stocks they already owned.

Regulators also agreed to temporarily halt new product launches, ban advertising for existing products and raise the minimum order size to 20 units from one until market conditions stabilize.

Many investors, however, argue the restrictions fail to properly address concerns that the products amplify market volatility.

Since their launch in May, the 16 products have attracted more than 13 trillion won in trading value, fueled by strong retail demand for amplified exposure to Korea's two largest chipmakers.

Unlike conventional leveraged ETFs, which track broader indexes such as the KOSPI 200 or the S&P 500, the products offer leveraged exposure to individual stocks, allowing investors to gain or lose twice the daily return of their underlying shares.

As semiconductor shares declined, losses on the leveraged ETFs were magnified.

Shares of Samsung Electronics fell 24.3 percent and SK hynix lost 19.5 percent over the past month, while the KODEX Samsung Electronics Leverage ETF dropped 48.4 percent and the KODEX SK hynix Leverage ETF fell 45.6 percent.

Lawmakers on Monday called on regulators to consider further measures.

Members of the ruling Democratic Party of Korea's (DPK) national policy committee met with officials from the Financial Services Commission and the Financial Supervisory Service to discuss possible follow-up measures.

"We requested regulators to strengthen market monitoring, prepare additional measures if necessary and consult more closely with the National Assembly before introducing further steps," Rep. Park Sang-hyuk of the DPK told reporters after the meeting.

In an interview with public broadcaster KBS on Sunday, presidential chief of staff for policy Kim Yong-beom ruled out delisting the products, saying it would be "hard to imagine" because removing the products could disrupt the market as assets linked to them have already grown rapidly.

Kim's remarks drew fresh criticism from the main opposition People Power Party (PPP), which called on President Lee Jae Myung to dismiss Kim, arguing that the policy chief should take responsibility for promoting the products.

"Retail investors are suffering heavy losses because of the leveraged ETFs that he pushed for, yet he insists there will be no delisting without offering an apology," PPP leader Rep. Jang Dong-hyeok said Monday.