South Korea Strangles Leveraged ETFs: Samsung and SK Hynix in the Crosshairs

South Korea has recently tightened its regulations on leveraged ETFs, leading to a sharp drop in trading volumes for products linked to tech giants like Samsung Electronics and SK Hynix. These ETFs, which allow investors to speculate on amplified price movements, have seen their volumes collapse by more than 70% since the new rules came into effect on July 1, 2026. The South Korean Financial Services Commission (FSC) justified the measure by the need to protect retail investors, often exposed to disproportionate risks in a context of heightened volatility. What happened Leveraged ETFs on Samsung Electronics and SK Hynix recorded a drastic decline in trading volumes after the adoption of the new restrictions. According to available data, total volumes of leveraged ETFs in South Korea fell from 12.4 billion South Korean won (KRW) in June 2026 to just 3.7 billion KRW in July 2026. Major issuers impacted, such as KB Asset Management, Mirae Asset, and Hanwha Investment & Securities, which together held 85% of the market, had to adapt to these new rules imposed by the FSC. Among the key measures, the FSC introduced leverage caps and restrictions on access to these products for unqualified investors. Previously, the ETFs allowed exposures of up to 3x on underlying stocks, with annual management fees ranging between 0.5% and 1.2%. The regulation now requires issuers to publish more visible risk notices, including simulations of losses in case of a crash. No exemptions were granted for semiconductor-linked ETFs, despite their popularity among local traders. Why this matters This decision is part of a broader context of increased scrutiny of complex financial products in Asia, where regulators are seeking to avoid crises similar to that of Terra/LUNA in 2022. Leveraged ETFs, by amplifying price movements, expose investors to systemic risks, particularly during periods of volatility. Their strict regulation in South Korea could serve as a model for other Asian countries, such as Japan or Taiwan, where similar products are also popular. Technically, a leveraged ETF uses derivative instruments, such as swaps or futures contracts, to amplify the returns of an underlying asset. For example, a 3x ETF on Samsung Electronics gains 3% if the stock rises by 1%, but loses 3% if it falls by 1%. These products are particularly risky in the event of sudden movements, which can lead to forced liquidations. Their popularity in South Korea had surged in 2025, but the recent regulation aims to limit these risks for retail investors. What to watch Immediate impact : Tokens linked to semiconductors, such as those in the Samsung or SK Hynix ecosystems, could face short-term selling pressure, with a risk of dumping of speculative positions. Volumes on South Korean platforms like Upbit or Bithumb could reflect this trend. Sectoral effect : DeFi protocols offering similar products, such as leveraged yield farming, could be indirectly affected. Stablecoins, often used to trade these products, may see their local demand decrease. Regulatory trend : This measure illustrates a tightening of regulations in Asia, where authorities are seeking to protect investors following scandals like that of Terra (LUNA). Crypto-assets, perceived as speculative assets, could face increased regulatory pressure. Issuer reactions : By September 2026, the FSC will publish data on the impact of the new rules, including the number of affected investors and residual volumes. Issuers may propose alternatives, such as inverse leveraged ETFs or products with reduced leverage effects.