South Korea’s financial authorities have called on the securities industry to refrain from excessive competition ahead of the May 27 launch of single-stock leveraged and inverse products that track the daily returns of Samsung Electronics and SK hynix by ±2 times. Despite the warning, brokerages are continuing marketing campaigns tied to the products.
/News1
According to the securities industry on May 21, eight asset management firms — Samsung, Mirae Asset, Korea Investment, KB, Shinhan, Hanwha, Kiwoom and Hana Asset Management — plan to list the products. The newly listed ETFs will include leveraged products that track twice the daily share-price returns of Samsung Electronics and SK hynix, as well as inverse products that allow investors to bet twice on declines in those stocks.
Investor interest is expected to be strong, as Samsung Electronics and SK hynix have effectively led this year’s KOSPI rally. To trade the products, investors must complete the Korea Financial Investment Association’s mandatory “single-stock leveraged and inverse exchange-traded product pre-trading education” program.
The products are considered high-risk instruments with significant price volatility. In addition to the existing one-hour pre-trading education requirement, investors must complete an additional one-hour advanced course, bringing the total required training time to two hours. From April 28, when the education program began, through May 19, 85,306 people had applied for the course and 79,286 had completed it. The number of graduates has been rising as the launch date approaches.
Amid heightened volatility in the domestic stock market, financial authorities have warned of potential losses for retail investors and asked the industry to avoid excessive competition. At the second Consumer Risk Response Council meeting on May 18, Financial Supervisory Service Governor Lee Chan-jin said, “As stock market volatility continues, we must maintain a high level of vigilance against financial companies encouraging excessive leveraged investment or margin-financed trading, as well as market-disruptive activities by some financial influencers.”
The FSS also plans to monitor the management status, tracking errors, premium and discount levels, and trading trends of leveraged and inverse ETFs. It will also examine the industry’s marketing practices to determine whether investors are being properly informed about the structure and risks of leveraged products.
Brokerages, however, are actively conducting promotional campaigns ahead of the launch. KB Securities is offering a 5,000 won domestic stock coupon to the first 50,000 customers who complete the single-stock leveraged and inverse product education program and register their completion number by June 30. The firm is also offering Samsung Electronics premium home appliances through a prize draw.
Kiwoom Securities is offering coffee gift vouchers to up to 20,000 customers selected by lottery after they register their education completion number. Korea Investment & Securities is giving 4,000 won to the first 5,000 customers who register their completion number by the end of this month, while also offering benefits worth 50,000 won to 200 customers selected by lottery.
Industry officials stress that investors should understand the structural risks of leveraged products before investing. Even if an underlying stock or index falls and later returns to its original level, investors in leveraged products may still incur losses. This is because the products track twice the daily price movement, meaning losses occur on a larger base while subsequent gains are calculated from a smaller base. As a result, investors may see their principal gradually erode even in a sideways market.
“Losses can be greater in a range-bound market where there is no clear directional trend,” an industry official said. “Even if the underlying index does not move significantly, leveraged products can accumulate losses as repeated volatility is reflected in their returns. Investors need to fully understand this structure before trading.”
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