As semiconductor stocks experience significant volatility, investors trapped in single stock leverage products are increasingly frustrated with the government's 30 million won rule. Critics argue that the government's one-size-fits-all regulation fails to protect existing investors from risk and does not safeguard new investors either. Small investors, lacking cash reserves, are deprived of opportunities to adjust their positions, while those with more cash can enter the market, reinforcing an unequal market structure.
According to the securities industry on October 6, small investors are voicing concerns about reverse discrimination stemming from the investment regulations on single stock leverage products introduced by the government in July. Every morning at 9 a.m., around 3,000 participants in a KakaoTalk open chat room for Samsung Electronics and SK Hynix leverage investors share figures like '-80%', '-85%', and '-97%', indicating their investment losses. An SK Hynix leverage investor, identified as A, stated, "The government listed leverage products at semiconductor peaks, and now, with the cash requirement of 30 million won, we can't even make a move without it. With our investment down 75%, being unable to buy more forces small investors to realize their losses."
The government's supplementary measures for single stock leverage products (ETFs and ETNs) announced in July included raising the basic deposit requirement from 10 million won to 30 million won and excluding the value of substitute securities like stocks, ETFs (excluding leverage ETFs), and bonds from the calculation of the basic deposit. Starting in November, the trading unit will also increase from one share to 20 shares (tentative). Currently, the single stock leverage product with the largest decline, 'KODEX SK Hynix Single Stock Leverage,' has dropped 74% from its peak, while 'TIGER Samsung Electronics Single Stock Leverage' has fallen by 59.9% based on the closing price on October 2 (11,555 won).
Leverage products track daily returns at double the rate, meaning that as stock prices fluctuate, investors face a 'negative compounding effect' that erodes asset value. Investors trapped at high points must actively lower their average purchase price to escape, given the product's structure that becomes less favorable over time. One anonymous investor remarked, "Having started investing in May and already being trapped at a high point, the lack of recognition for substitute securities and the requirement to hold over 30 million won in cash to trade further deprives small investors of the chance to lower their purchase price and exit the product. It’s as if only cash-rich investors can benefit from leverage products, similar to real estate." They added, "Existing investors are already exposed to the risks of these products, yet barriers for new investors are being raised, creating a vicious cycle."
Another investor noted, "Existing investors, already hit hard by the product's issues, lack the capacity to buy more, while someone with 30 million won in cash can enter the market without prior investment. This is a paradoxical situation. Existing investors should be allowed to make additional purchases with a portion of their holdings." They criticized the government's blanket monetary regulation as an overly administrative approach that fails to acknowledge the product's introduction failures.
Moreover, there are concerns that investors, in their attempts to recover from leverage losses, are turning to unregulated overseas leverage investments or falling prey to illegal investment schemes. According to the Korea Securities Depository, following the implementation of leverage regulations (from July 31 to August 19), domestic investors' trading volume for SOXL (a U.S. semiconductor triple leverage ETF) reached $6.54357 billion (approximately 9.1191 trillion won), accounting for 34.4% of the top 50 overseas stocks. This marks a 3.8 percentage point increase from the pre-regulation figure of 30.6%. In contrast, the trading volume for 16 domestic single stock leverage products plummeted by 90.8% to 1.069 trillion won during the same period. This indicates that the demand for leverage has not disappeared but has shifted to overseas markets.
The government acknowledges these concerns but has stated that there are no plans for further review of the security measures for leverage products. A Financial Services Commission official remarked, "The security measures for leverage products are aimed at reducing market volatility and stabilizing the market. Additional security measures for existing investors are not under consideration."
* This article has been translated by AI.
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