By Jason Chau
South Korea has tightened restrictions on investments in single-stock leveraged exchange-traded funds, as authorities move to curb market volatility following a selloff in chip stocks that wiped out trillions of dollars in market value.
Regulators capped individual investors' holdings of single-stock leveraged ETFs at 20% of their total portfolios and raised trading costs for the funds at an emergency government meeting Wednesday night, Korea's finance ministry said.
They are also seeking legal authority to establish market-stabilization measures during periods of emergency, mirroring a similar mechanism introduced in Hong Kong.
Authorities have blamed single-stock leveraged ETFs tracking either one of the country's two star chip makers--SK Hynix and Samsung Electronics--for the market swings. The ETFs were introduced in May to broaden market participation, but have since attracted a surge in speculative individual investors using margin financing, raising fears of potential cascading margin calls. Officials have since expressed regret in approving the launch of such funds.
To address extreme market swings, regulators on Friday fast-tracked the implementation of a higher minimum cash deposit requirement for single-stock leveraged ETF investments to the end of July from August. The measure came after they temporarily suspended new listings of single-stock leveraged ETFs and exchange-traded notes, and banned firms from marketing such products in mid-July.
Still, stock volatility remained elevated this week.
The benchmark Kospi fell more than 18% from Tuesday through Thursday, with the loss amplified by SK Hynix's decline on Wednesday after its quarterly results missed lofty market expectations. The index, which is dominated by SK Hynix and Samsung in terms of capitalization, has fallen around 40% from its peak earlier this year.
It closed Thursday's roller-coaster ride 1.2% lower, as the chip rout outweighed Samsung's upbeat outlook and surge in earnings.
Regulators also concluded on Wednesday that this week's selloff was driven by rising concerns about the sustainability of massive artificial-intelligence infrastructure spending, particularly amid growing competition from cost-competitive Chinese chip makers and AI model developers, which have delivered a string of technological breakthroughs in recent weeks.
Technical factors also played a part, regulators said.
"The market downturn was amplified largely by weakening investor sentiment and unstable market flows during what was essentially a correction following the recent sharp run-up in stock prices," they added.
Write to Jason Chau at jason.chau@wsj.com
(END) Dow Jones Newswires
July 30, 2026 06:28 ET (10:28 GMT)
Copyright (c) 2026 Dow Jones & Company, Inc.