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Lee Eog-weon, chairman of the Financial Services Commission, and Lee Chan-jin, governor of the Financial Supervisory Service, attend a plenary meeting of the National Policy Committee held at the National Assembly on July 29 / Yonhap News

As heavy drops in Samsung Electronics and SK Hynix push single-stock leveraged ETFs into sharp declines, the underlying assets double-down impact has mounted severe losses for investors. Pointed to as a key cause magnifying overall domestic stock market volatility through mechanical trading, government and financial authorities have stepped in with emergency measures.

According to the Korea Exchange on July 29, single-stock 2x leveraged ETFs tracking Samsung Electronics and SK Hynix sustained double-digit percentage plunges for two consecutive days. With SK Hynix and Samsung Electronics sliding 9.61% and 5.23% respectively, leveraged products posted cumulative losses reaching up to the 40% range over two days.

Samsung Asset Management's KODEX SK Hynix Single Stock Leveraged, the largest in net assets, closed down 20.19% from the previous session at 7,925 won. Compared to its initial listing price of 23,450 won on May 27, the stock plummeted to a third of its value in just two months, even dipping toward the 6,000-won level during intraday trading.

Mirae Asset Global Investments' TIGER SK Hynix Single Stock Leveraged faced a similar fate, tumbling 21.15% to close at 6,655 won, pushing two-day cumulative losses past 43%. Samsung Electronics-based KODEX Samsung Electronics Single Stock Leveraged and TIGER Samsung Electronics Single Stock Leveraged both dropped roughly 10%, racking up around 34% in two-day cumulative declines.

Market analysts note that single-stock leveraged ETFs serve as a main driver of supply-demand distortion, fueling panic selling across domestic equities. To meet daily target returns, leveraged ETFs must execute rebalancing by mechanically selling underlying assets during stock pullbacks. Analysts point out a repeating vicious cycle where heavy rebalancing sell-offs released as prices fall drag down the underlying shares, triggering further ETF crashes.

As market conditions rapidly deteriorated, top government and financial officials stepped up to address the crisis. Deputy Prime Minister and Minister of Finance Koo Yoon-cheol, Financial Services Commission Chairman Lee Eog-weon, and Financial Supervisory Service Governor Lee Chan-jin attended a National Assembly briefing and apologized for the amplified market volatility stemming from leveraged ETFs.

The authorities convened an emergency F4 market condition meeting with economic and financial leaders at 6 p.m. to discuss supplementary measures. Alongside raising minimum initial deposits to 30 million won, prospective measures under discussion include further lifting the minimum deposit to 50 million won and restricting new single-stock leveraged ETF purchases exclusively to professional investors.

                                                                                                        Han Hye-seong