Korea opened the door to single-stock leveraged ETFs. It didn't check if the money would come home, though.

Regulators approved Korea's first leveraged funds tracking a single stock in May, arguing that the products would stop investors from sending money to similar funds listed in the United States and Hong Kong.

However, neither the financial regulators nor the Ministry of Finance and Economy nor the central bank ever estimated how much capital would come home, material released by a lawmaker on Tuesday shows.

Within two months of launch, the very same regulators had suspended new listings and tripled the cash an investor must hold to trade them.

The Finance Ministry, the Financial Services Commission (FSC) and the Bank of Korea (BOK) told the office of Rep. Kim Sang-hoon of the main opposition People Power Party (PPP) that they had made no separate estimate of how the funds would reduce overseas investment outflows or lift domestic investment.

That sits awkwardly against one of the rationales regulators gave in public. Announcing the planned deregulation on Jan. 30, the FSC said domestic demand for a wider range of investment products was going unmet and that narrowing the regulatory gap between Korean and overseas-listed products could reduce the incentive for capital to leave.

A single-stock leveraged exchange-traded fund (ETF) tracks one company rather than an index and is built to move at a multiple of that stock's daily return in either direction.

Korea's 16 products track Samsung Electronics and SK hynix at up to twice their daily moves. They became possible when the Cabinet approved a revision to the enforcement decree of the Capital Markets Act on April 21, lifting a ban on single-stock leveraged products. Because the change was set out in an enforcement decree rather than in the law itself, it did not require the approval or even the involvement of the National Assembly.

The Finance Ministry told Kim Sang-hoon's office that it participated in the vice-ministerial and Cabinet meetings that approved the decree. The BOK said it monitored conditions through interagency market review meetings. Neither supplied any analysis of the expected capital-return effect.

The FSC said it had reviewed overseas cases, the products’ risks and their likely effect on the domestic market, but had not separately estimated how far they would reduce outflows.

The commission later pointed to evidence that Korean money had moved out of comparable Hong Kong-listed products. Data it released on June 26 showed Korean investors made $50 million in net purchases of three Hong Kong-listed leveraged ETFs linked to Samsung Electronics and SK hynix between Oct. 16, 2025, and May 26. They made $140 million in net sales of the same products between May 27 and June 24.

Kim Sang-hoon said figures produced a month after launch are not what he had asked for.

"The government promoted the expected effect of bringing overseas investment demand back home, yet it did not examine how much money would actually return," Kim said. "Given that these are high-risk products, it should have closely examined the policy effect and market impact before introducing them."

Single-stock leveraged ETFs began trading on May 27, four months after the Jan. 30 announcement.

However, regulators reversed course when trading overheated. On July 16, authorities suspended new listings of single-stock products until the market stabilized and investor-protection requirements were tightened.

Since July 31, individual investors need at least 30 million won ($21,800) in cash in their accounts before buying the products, up from 10 million won, though this sum can be partly met with other securities.

Trading has collapsed since the regulatory U-turn.

The 16 single-stock leveraged ETFs recorded 535 billion won in turnover on Friday, down 97.25 percent from a peak of 19.4429 trillion won on June 24, according to the Korea Exchange.

"Strengthening the minimum-deposit requirement effectively cooled trading," a report published by the National Assembly Research Service on Aug. 18 said. "But excessive entry restrictions can limit investors' ability to make reasonable choices."

Parts of the securities industry argue that product innovation and investor protection are not mutually exclusive.

"For high-risk innovative products to become established in the market, regulators should have put detailed safeguards in place from the introduction stage, including volatility limits, systems to manage price deviations and tailored investor education," an industry source said.

BY PARK HYUN-JU [[email protected]]