Trading volume in single-stock leverage ETFs drops 92% after tighter deposit rules

Daily trading volume in domestic single-stock leverage and inverse ETFs tied to Samsung Electronics and SK hynix fell more than 90% in the month after regulators raised the minimum deposit requirement, with turnover rates also falling sharply.

An analysis of data submitted by Korea Exchange to the office of Democratic Party of Korea lawmaker Kim Yong-man of the National Assembly’s Political Affairs Committee found that average daily trading volume across 16 single-stock leverage and inverse ETFs dropped about 92% — from 12.25 trillion won ($9.01 billion) in the month before the deposit regulation took effect to 990 billion won in the month after.

Financial authorities raised the basic deposit requirement for single-stock leverage and inverse products from 10 million won to 30 million won in cash on July 31. The analysis compared 22 trading days before the measure took effect with 21 trading days from the effective date onward.

Breaking down the figures, average daily trading volume for 14 leverage ETFs fell 91% — from 8.64 trillion won to 800 billion won, roughly one-tenth of the prior level — while the two inverse 2X ETFs saw a 95% decline, from 3.6 trillion won to 190 billion won.

The average daily turnover rate for the 14 single-stock leverage ETFs (excluding the two inverse 2X products) dropped from 43.6% before the regulation to 5.9% afterward, falling to a single digit.

The two single-stock inverse 2X ETFs, which had carried especially high turnover rates, saw their average daily turnover tumble from 1,110.4% to 125.0%.

The trading slump did not ease after the initial days following the regulation’s introduction.

Average daily trading volume for the 14 single-stock leverage ETFs (excluding the two inverse 2X products) plunged from 6.44 trillion won in the four days just before the regulation — July 27 through July 30 — to 870 billion won in the first week after it took effect. Volume then came in at 620 billion won in the second week, 790 billion won in the third and 600 billion won in the fourth, before falling further to 530 billion won on Aug. 31, the last trading day of the period.

Retail investor trading patterns showed net purchases every week during the five weeks before the regulation. That reversed on July 31, the day the rule took effect, when retail investors recorded net selling of 1.07 trillion won. They continued to sell on a net basis in most subsequent weeks, with the exception of the Aug. 24–28 period.

However, the drop in trading volume cannot be taken as direct evidence that investors are better protected. Concerns have been raised about a so-called balloon effect, in which investment demand simply shifts to products not covered by the regulation.

“The fact that trading has declined does not mean investor protection is complete,” Kim said. “Going forward, the government needs to keep a close watch on the market — monitoring whether the deposit regulation’s effects will last over the longer term and whether risks are migrating to products that remain outside its scope.”

hss@heraldcorp.com