South Korea’s financial regulators announced on July 16 that they would ban new listings of single-stock leveraged exchange-traded funds and triple the minimum cash deposit required to trade the existing ones, from 10 million won to 30 million won (about $20,300). The measures, laid out in a joint statement after a meeting that included Finance Minister Koo Yun-cheol and Financial Services Commission Chairman Lee Eog-weon, arrive just two months after regulators approved the products in the first place.
The intervention runs deeper than the headline ban. The minimum trading unit rises from one share to 20, a change regulators said is meant to discourage trading. Investors must complete an extra hour of mandatory training, with a mid-course assessment; those who fail repeat the course chapters. Liquidity providers must keep the funds’ market price within 2 percent of net asset value, tightened from 3 percent. Both the listing halt and a suspension of promotional activity for the products are in place “until market conditions stabilize.” The tripled deposit requirement is expected to take effect August 5, and the commission has said further measures could follow if markets stay turbulent.
The day the measures were announced, the Kospi fell 6.37 percent to close at 6,820.60 — one day after rising 6.24 percent.
Two months from approval to ban
The products at the center of the storm launched on May 27: sixteen leveraged and inverse ETFs tied to single stocks, designed to deliver twice the daily move of Samsung Electronics or SK Hynix. They arrived mid-mania. The Kospi, which reigned as the world’s best-performing major index after more than doubling in about six months, and the two chipmakers — riding AI memory demand that carried SK Hynix past Samsung to become Korea’s most valuable company for the first time in over 25 years — were most of the reason the rally had gone vertical.
Demand for the new funds was far more concentrated than regulators expected. According to data presented at the Financial Supervisory Service’s consumer risk council on July 6, individual investors net-purchased 8.9 trillion won of single-stock leveraged products between May 27 and June 22, with a turnover rate of 105.3 percent and average daily trading of 9.6 trillion won. “It’s highly unusual to introduce safeguard measures a little more than a month after a product’s launch,” Byun Je-ho, director general of the FSC’s Capital Market Bureau, told reporters on July 16. “When the products were launched on May 27, semiconductor stocks were already experiencing heightened volatility. The two factors combined led to much more concentrated demand than had been expected, leaving us with little choice but to introduce safeguard measures to protect both the market and investors,” he added.
The leverage was not confined to the ETFs. Margin loan balances in the domestic market hit a record 38.63 trillion won on June 24, according to the Korea Financial Investment Association, and broader Bank of Korea data that includes other forms of borrowing showed total investor debt above an unprecedented 60 trillion won at the end of May. The Kospi set its all-time closing high on June 22 — and the leverage kept building for two more days after the top.
The unwind
The descent came in lurches, not a line. On July 7 the index fell 4.91 percent to 7,656.31, and nearly all of the new single-stock leveraged ETFs dropped below their 20,000-won listing price; analysts estimated mark-to-market losses on the funds at around 1 trillion won. On July 13 — quickly dubbed another “Black Monday” — the Kospi plunged nearly 9 percent and slipped below 7,000, as a retreat in semiconductor shares combined with geopolitical tensions. By July 16 the index sat at 6,820.60, roughly a quarter below the June 22 record close. Trading curbs that were once rare became routine: 19 sidecars have been triggered since the products launched in late May, out of 37 activations this year, earning the market the nickname “Roller Kospi.”
For leveraged investors, a falling market means brokers selling positions out from under them. The Financial Supervisory Service’s own figures, released July 7, show daily forced selling on unsettled margin accounts averaging 52.7 billion won in June — roughly seven times the 7.1 billion won daily average at the end of last year. Credit-financed stock purchases climbed from 27.3 trillion won at the end of 2025 to 37.3 trillion won by the end of June. And the deleveraging is visible in the same ledger it built up in: KOFIA margin balances fell from that 38.63 trillion won peak to 34.37 trillion won by July 15.
Reuters put a face on the mechanics: a 24-year-old Seoul university student who turned 20 million won of military-service savings into nearly 300 million won using a 500 percent margin loan — five-times leverage unlocked, he said, by “a tiny circle button” on his trading app — then watched forced liquidations take his account below his starting capital in about four weeks. “I literally could not breathe,” he told the news agency. He also said he plans to borrow and return to the market as soon as he can. With Seoul apartment prices averaging around 14 years of salary, Reuters noted, leverage looks to many young Koreans less like a vice than like the only ladder still standing.
What the leverage story explains — and what it doesn’t
It is worth being precise about what is documented and what is not, because this story has traveled fast and gotten louder with distance.
The most-quoted casualty figure — 1.2 million Korean accounts hit with margin calls, up to a tenth of all brokerage accounts — is not an official statistic. It traces to an estimate Fundstrat’s Tom Lee gave on CNBC on July 17, and versions of it circulating with “regulators report” attached are misattributed. The FSS’s officially released figures are narrower: the seven-fold rise in daily forced-selling averages and the credit-balance data above. Accounts-liquidated counts in the hundreds of thousands, widely repeated by aggregator sites, could not be traced to a primary source for this article.
The regulators themselves also pushed back on the tidiest version of the narrative — that their own approved products crashed the market. During the volatile stretch, the FSC noted, shares of other global memory chipmakers, including Micron and Kioxia, swung even harder than SK Hynix. The underlying story is a global repricing of AI-driven chip demand; the leverage amplified Korea’s version of it. How much is genuinely attributable to the ETFs’ mechanical rebalancing — funds that must sell more as prices fall to maintain their target exposure — is contested, and the FSC stressed the products were not the sole driver even as it moved against them.
Nor has the move been one-way. The Kospi jumped 6.24 percent on July 15, and on Wednesday it surged back above 7,000 in morning trading, triggering the year’s 20th buy-side sidecar, before the rally faded to a close of 6,797.70 — back below the line. “Crash” compresses what is really a violence-in-both-directions problem, which is precisely what daily-reset leveraged products feed on, and why regulators aimed at them.
There is an accountability thread here that outlasts the volatility. Regulators approved these products in the spring; the Financial Supervisory Service’s governor, Lee Chan-jin, was publicly criticizing them by June 22 — less than a month after launch — saying they had done little more than enrich securities firms, whose commissions the agency estimated in the billions of dollars. The FSS issued investor warnings on May 15 and May 25 and a consumer alert on June 18, even as retail money poured in. One market strategist told Reuters the July ban was “a correction of a known policy error.” That is the uncomfortable shape of the story: the products did what their prospectuses said they would do, the warnings were published while the buying accelerated, and the rules changed only after the losses arrived. Whether tripled deposits and a listing ban restrain the next leverage cycle — or simply reroute it — is the question Seoul has bought itself time to answer.
