South Korea Weighs Cap on Single-Stock Leveraged ETFs in Retail Portfolios

SEOUL – South Korea’s top financial authorities said on July 29 they will cap the proportion of single-stock leveraged exchange-traded funds in individual investors’ portfolios, as part of emergency measures to stabilize a stock market that has lost about 40% from its June peak.

The move follows an emergency meeting hosted by Finance Minister Koo Yun-cheol and attended by the heads of the Bank of Korea, the Financial Services Commission, and the Financial Supervisory Service. “Participants agreed that concentrated trading in single-stock leveraged products has contributed to heightened market volatility and pledged to respond swiftly and decisively,” the finance ministry said in a statement.

One option under consideration would limit such ETFs to 20% of a retail investor’s portfolio, according to the Korea Times, though no final decision has been made. Other measures include raising trading costs for these products and imposing a heavier financial burden on brokerage firms to curb excessive trading. Authorities also plan to introduce a simulated trading requirement, in addition to an existing mandatory pre-trading education program, the ministry said.

The government will also seek a legal basis for activating emergency market-stabilization measures, drawing on overseas precedents such as Hong Kong’s flexible leverage regime, according to the statement.

The measures come on top of restrictions already set to take effect. Starting July 31, the minimum cash deposit required to invest in single-stock leveraged ETFs will be raised to 30 million won ($20,600) from 10 million won, the Korea Times reported. In August, the mandatory education program will be extended from two hours to three hours. From November, investors will be allowed to trade these ETFs only in batches of 20 shares, which regulators say will reduce turnover.

South Korea’s equity market, the world’s best performer earlier in 2026 on optimism over artificial intelligence and chip demand, has since been hit by a sharp selloff, according to the Straitstimes. The Kospi has plunged about 40% from its June peak. The selloff deepened on July 29 after SK Hynix reported weaker-than-expected earnings, raising doubts over the AI investment boom. The fall triggered a market-wide circuit breaker for a second straight day.

At parliamentary hearings on the issue, lawmakers criticized the government’s handling of the policy. Single-stock leveraged ETFs were rolled out domestically in May, and lawmakers argued they have amplified Kospi swings, making the market significantly more volatile than global peers. “The country has turned into a casino,” People Power Party lawmaker Lee Jongwook told Koo during the hearing, as reported by the Straitstimes. “These are products that should never have been allowed onto the market. I consider this a policy failure.”

Several lawmakers noted that Hong Kong has not listed comparable products linked to domestic-listed companies and criticized regulators for approving two-times leverage in a market dominated by Samsung Electronics and SK Hynix, the Straitstimes reported.

At the hearings, Koo apologized, acknowledging that authorities should have examined the products more carefully before their launch.

The emergency meeting also assessed that recent market volatility was driven by intensifying competition in the memory chip industry due to the rise of Chinese rivals, along with concerns over fundraising by major U.S. technology companies, according to the Korea Times. Participants agreed that Korea’s economic fundamentals remain strong, stressing that excessive concerns over the outlook for the country’s stock market should be avoided.