Taiwan Rules Out Introduction of Individual Stock Leveraged ETFs Amid Korean Market Decline

On June 26, the KOSPI index is displayed on the trading board at Hana Bank's dealing room in Jung-gu, Seoul. On that day, the KOSPI closed at 8,411.21, down 519.09 points (5.81%) from the previous session. The KOSDAQ index also fell 36.44 points (4.1%) to close at 851.37. [Photo=Yonhap News]

Taiwan's stock exchange has decided not to consider the introduction of individual stock leveraged exchange-traded funds (ETFs), which have been cited as a factor in the recent sharp decline of the South Korean stock market.
According to the Taiwan Economic Daily, the Taiwan Stock Exchange reported on June 28 that it is not reviewing the introduction of individual stock ETFs, taking into account the current market conditions, investor protection, and the characteristics of the ETF market in Taiwan.
The report noted that on June 26, Asian stock markets experienced a significant drop, with South Korea's KOSPI index plummeting by 5.8%, the largest decline among major Asian markets. Analysts suggest that the surge of South Korean retail investors into double-leveraged individual stock ETFs has led to a chain reaction of selling pressure, contributing to the recent downturn in the Korean stock market.
On May 27, 16 individual leveraged and inverse ETFs based on Samsung Electronics and SK Hynix were listed on the Korea Exchange. According to the Korea Exchange and Koscom, the trading volume for these 16 ETFs reached a total of 16.3998 trillion won on June 26, significantly impacting the market. This figure represents 35.2% of the total ETF trading volume of 46.6393 trillion won on that day.
Leveraged individual stock ETFs are structured to track the price movements of a single stock at a multiple, meaning that concentrated buying or selling by investors can further disrupt the supply and demand for that stock. If the underlying assets are major stocks like Samsung Electronics or SK Hynix, which have significant weight in the index, the volatility could spread to the broader market.
However, the Taiwan Stock Exchange emphasized that the situation in South Korea should not be directly applied to the Taiwanese market. Most leveraged and inverse ETFs in Taiwan track indices rather than individual stocks and utilize derivatives such as futures and options to pursue daily directional or inverse multiple returns.
Price limits also differ between the two markets. In South Korea, the daily price limit for individual stocks is set at 30%, while in Taiwan, it is limited to 10% for both stocks and ETFs. The Taiwan Stock Exchange stated that due to differences in product design and market oversight systems, the likelihood of a similar ETF-induced market crash occurring in Taiwan is low.

* This article has been translated by AI.

Hwang Jin Hyun jinhyun97@ajunews.com