As financial authorities prepare to implement regulations on single stock leveraged exchange-traded products (ETPs), individual investors have significantly increased their purchases of these related products. This surge is interpreted as a response to the upcoming increase in the basic deposit requirement.
According to the Korea Exchange and Koscom CHECK, individual investors net bought 453.8 billion won worth of 14 single stock leveraged ETFs and ETNs related to Samsung Electronics and SK Hynix on July 24. They purchased 103.8 billion won in Samsung Electronics-related products and 350 billion won in SK Hynix-related products.
Excluding the first trading day after the announcement of supplementary measures on July 20, individual investors had recorded three consecutive days of net selling from July 21 to 23. However, on July 24, they shifted back to net buying with a large-scale bargain purchase. Consequently, the cumulative net purchase from July 20 to 24 reached 115.6 billion won.
This buying trend is largely attributed to investors seeking to capitalize on sharply reduced prices. On July 24, Samsung Electronics and SK Hynix saw their stock prices drop by 7% to 8%, leading to a 15% to 16% decline in major single stock leveraged products within a day. Most product prices fell from their listing price of 20,000 won to around 11,000 to 12,000 won, effectively halving their value. With the basic deposit requirement set to increase from 10 million won to 30 million won starting July 31, there appears to be a rush to increase holdings before the regulations take effect.
Financial authorities view single stock leveraged products as a significant factor contributing to market volatility, particularly surrounding Samsung Electronics and SK Hynix, and are moving to tighten regulations. Beginning July 31, the basic deposit for single stock leveraged ETFs and ETNs will rise to 30 million won and will only be recognized in cash. Additionally, measures to strengthen liquidity provider (LP) management responsibilities and expand trading unit sizes will be implemented sequentially.
However, despite the impending regulations, market volatility remains high. According to the Korea Exchange, the average daily volatility of the KOSPI from July 1 to 24 was 6.23%, surpassing the previous monthly record set during the global financial crisis in October 2008 (6.11%). Last week, the average daily volatility was 4.98%, down from 6.75% the previous week, but still at a high level. The KOSPI and KOSDAQ markets experienced sidecar interventions four and three times, respectively, last week.
Han Ji-young, a researcher at Kiwoom Securities, noted, "The measures do not include reductions in leverage ratios or restrictions on the establishment of new products, so the impact may be limited. For the time being, market direction will likely be determined more by semiconductor industry conditions and corporate earnings fundamentals than by leverage-related supply and demand issues."
* This article has been translated by AI.
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