South Korean regulatory authorities have recently continued to tighten the leverage requirements for individual stocks ETF in an attempt to curb the speculative fervor that once caused significant market volatility. After the new regulations were implemented, trading activity related to Samsung Electronics and SK Hynix products has noticeably cooled down, and funds have also begun to flow out of the market.

In August, the peak transaction volume is now down to just 4%.

According to a report by Bloomberg on August 29, the volume of trades for the single stock leveraged product ETF linked to Samsung Electronics and SK Hynix has dropped to 4% of its peak in June. As of August 27, the asset management scale of related products had decreased from a high of $11.4 billion at the end of June to $5 billion, with a net outflow of approximately $1 billion in August alone.

Such products were launched in May this year and were initially seen as a tool to attract retail investors back to the South Korean stock market. However, during the period of most active trading, the combined trading volume of the related underlying stocks and leveraged ETF once accounted for over 80% of the total trading volume of the South Korean stock market, which in turn amplified market volatility.

5-day simulated trading becomes the new threshold

Since July, South Korean regulatory authorities have gradually raised the entry requirements. Early measures included requiring investors to hold at least 30 million Korean won in cash in order to trade such products.

The new regulations will take effect from August 19th. Investors are required to download a dedicated program at PC and complete at least 1 hour of simulated trading per day for a consecutive period of 5 days before they can obtain trading qualifications. The system provides 100 million Korean won in virtual funds to demonstrate the risks associated with leveraged products in volatile market conditions.

However, many retail investors consider this process to be overly cumbersome. Since the program only supports Windows PC and there is no mobile version available, some investors have stated that the installation restrictions and time requirements are sufficient to deter them from participating.

Fluctuations decline, but liquidity weakens

After the tightening of regulations, the volatility indicator related to South Korea's composite stock price index has fallen from 97 at the end of June to around 50, reaching a four-month low, indicating that short-term market fluctuations have eased.

However, the rapid decline in transactions has also brought new problems. For investors who still hold ETF, the decrease in liquidity means that it is more difficult to exit, and the cost of selling may increase. Rebecca Sin, an analyst at Bloomberg Intelligence, believes that South Korea's regulatory attitude has shifted from supportive to restrictive, and the pressure of capital outflows may continue in the short term.