Trading in single-stock leveraged and inverse exchange-traded funds (ETFs) based on Samsung Electronics and SK Hynix has significantly declined following the tightening of deposit regulations. A comparison of average daily trading volumes before and after the regulation took effect shows a 92% drop across 16 ETFs, with the turnover rate for leveraged ETFs falling to single digits.
On September 27, an analysis by the office of Kim Yong-man, a member of the National Assembly's Political Affairs Committee, revealed that the average daily trading volume for the 16 single-stock leveraged and inverse ETFs plummeted from 12.25 trillion won in the month prior to the regulation to 990 billion won in the month following its implementation.
The financial authorities strengthened the basic deposit requirement for single-stock leveraged and inverse products from 10 million won to 30 million won in cash, effective July 31. This analysis compares 22 trading days before the regulation and 21 trading days after, including the day the regulation was enacted.
Specifically, the average daily trading volume for 14 leveraged ETFs decreased from 8.64 trillion won to 800 billion won, a 91% drop to one-tenth of its previous level. The two inverse 2X ETFs also saw a 95% reduction, falling from 3.6 trillion won to 190 billion won.
During the same period, the average turnover rate for the 14 single-stock leveraged ETFs (excluding the two inverse 2X ETFs) fell from 43.6% before the regulation to 5.9% afterward. The two inverse 2X ETFs, which previously had high turnover rates, also saw a significant decline from 1,110.4% to 125.0%.
The decline in trading activity did not stop immediately after the regulation took effect. The average daily trading volume for the 14 single-stock leveraged ETFs (excluding the two inverse 2X ETFs) dropped sharply from 6.44 trillion won during the last days before the regulation (July 27-30) to 870 billion won in the first week after implementation. It further decreased to 620 billion won in the second week, 790 billion won in the third week, and 600 billion won in the fourth week, with the final trading day on August 31 recording a volume of just 530 billion won.
Changes were also observed in the trading patterns of individual investors. In the five weeks leading up to the regulation, individual investors recorded average net purchases. However, on July 31, the day the regulation was implemented, they shifted to a net sell of 1.07 trillion won. Since then, except for the period from August 24 to 28, they have continued to sell off their holdings weekly.
However, it is difficult to conclude that the decrease in trading volume alone has effectively protected investors. There are concerns that a so-called 'balloon effect' may occur, where investment demand shifts to products not subject to the regulations.
Kim Yong-man stated, "The mere fact that trading has decreased does not mean that investor protection has been achieved. The government must continue to monitor whether the effects of the deposit regulations will last longer and whether risks are being transferred to products outside the regulations."
* This article has been translated by AI.
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