After Losses, Retail Investors Flock to 3x Leverage as 2x Product Are Restricted

U.S. Leveraged ETF Purchases Surge by $1 Billion
High Demand for SOXL, KORU, TSLL
Domestic Single-Stock Leverage Transaction Volume Plummets

After the authorities raised the finance obstruction for home single-stock leverage products, a surge of costs has flowed into overseas leveraged Exchange Traded Funds (ETFs). Critics constituent retired that leverage regulations are pushing request for high-risk, high-return investments abroad, resulting successful unintended superior outflows from Korea.

According to the Korea Securities Depository connected August 5, from July 16, erstwhile the authorities announced its single-stock leverage measures, to August 3, the U.S. banal astir heavy purchased by Korean investors was the 'Direxion Daily Semiconductor Bull 3X ETF (SOXL)'. The trading measurement for SOXL purchases reached 4.63617 cardinal dollars, much than 7 times greater than the 2nd astir purchased stock, Micron Technology, which stood astatine 515.35 cardinal dollars. SOXL is simply a leveraged ETF that tracks U.S. semiconductor stocks astatine 3 times their regular performance.

During this period, 3 retired of the apical 10 U.S. stocks astir purchased by Korean investors were leveraged ETFs: SOXL, 'Direxion Daily MSCI South Korea Bull 3X ETF (KORU)', and 'DIREXION DAILY TSLA BULL 2X SHARES (TSLL)'. KORU tracks the KOSPI scale astatine 3 times the regular return, while TSLL is simply a leveraged ETF that reflects doubly the regular activity of Tesla’s stock price. The mixed acquisition measurement of these 3 leveraged ETFs was 5.1744 cardinal dollars—an summation of complete 1 cardinal dollars compared to the erstwhile 13 trading days, which totaled 4.14587 cardinal dollars.

As regulations connected home single-stock leveraged products person ramped up, costs are shifting toward overseas leveraged ETFs. In consequence to concerns that single-stock leverage products were amplifying marketplace volatility, the authorities announced connected July 16 that the minimum separator request would beryllium accrued from 10 cardinal won to 30 cardinal won, and imposed a per-person finance limit of 20% arsenic of July 29. Additionally, the Financial Services Commission is moving to revise the Capital Markets Act to supply ineligible grounds for taking marketplace stabilization measures successful emergencies, specified arsenic adjusting the leverage ratio for single-stock products.

Even connected July 31, the first time the 30 cardinal won separator request was implemented, SOXL remained the apical U.S. banal purchased by Korean investors, pinch a trading worth of 498.42 cardinal dollars. The 2nd astir purchased was KORU, astatine 63.8 cardinal dollars. Together, these 2 leveraged ETFs accounted for 80.2% of the full trading worth among the apical 10 purchased products.

In contrast, the trading worth of home single-stock leveraged products has plummeted. On July 30, individual and overseas investor trading successful 16 home single-stock leveraged products amounted to 5.5431 trillion won and 4.8588 trillion won, respectively. After the heightened separator requirement, individual and overseas investors’ trading volumes dropped to 423.7 cardinal won and 1.0164 trillion won, respectively, connected July 31, and further fell to 309.2 cardinal won and 488 cardinal won connected August 4.

An manufacture insider commented, “Efforts specified arsenic amending the Commercial Act person raised the credibility of Korea’s superior markets successful bid to build precocious markets, but pinch the accelerated tightening of regulations connected single-stock leveraged products wrong conscionable 2 months of their launch, regulatory risks are increasing and spot successful Korea could beryllium eroded again.” They added, “It’s important to found due measures, but hasty responses whitethorn extremity up causing unintended superior outflows.”

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