---
title: "KOSPI Plunges Over 5% Again; South Korean Regulators Plan to De-leverage: Single-Stock Leveraged ETF Multiples Could Be Cut Directly to 1x"
type: "News"
locale: "en"
url: "https://longbridge.com/en/news/294649696.md"
description: "The South Korean KOSPI index plunged over 5% on August 3, prompting regulators to accelerate de-leveraging efforts. The Financial Services Commission of South Korea plans to amend the Capital Markets Act, granting regulators \"emergency action authority\" to directly lower the leverage multiples of single-stock leveraged ETFs during periods of severe market volatility. Multiples could be reduced from 2x to 1.5x or even 1.1x to address high market volatility and panic sentiment"
datetime: "2026-08-03T06:29:06.000Z"
locales:
  - [zh-CN](https://longbridge.com/zh-CN/news/294649696.md)
  - [en](https://longbridge.com/en/news/294649696.md)
  - [zh-HK](https://longbridge.com/zh-HK/news/294649696.md)
---

# KOSPI Plunges Over 5% Again; South Korean Regulators Plan to De-leverage: Single-Stock Leveraged ETF Multiples Could Be Cut Directly to 1x

The South Korean stock market suffered another heavy blow on August 3, prompting regulators to accelerate de-leveraging actions, while the market's short-term high-volatility pattern remains difficult to break.

On Monday, the KOSPI index fell 5% to close at 6,241 points, while the decline in the KOSDAQ index triggered the Sidecar mechanism, forcing a five-minute suspension of program trading. Heavyweight stocks such as Samsung Electronics and SK Hynix each dropped more than 7% in a single day, as market panic sentiment was released in a concentrated manner.

Meanwhile, it was reported that South Korean financial regulators are considering introducing "emergency action authority," which would allow them to directly reduce the leverage multiples of single-stock leveraged ETFs during periods of severe market volatility. **Currently, these products generally track 2x returns; if emergency authorization is triggered, the multiple could be lowered to 1.5x, with a minimum potentially as low as 1.1x.**

## Regulatory Upgrade: Proposed Legislation to Grant "Emergency Action Authority"

In response to continued turmoil, South Korean financial regulators are pushing for more robust institutional responses. It was reported that the Financial Services Commission (FSC) and the Financial Supervisory Service (FSS) have initiated amendments to the Capital Markets Act. The core content involves granting regulators the power to directly adjust the leverage multiples of single-stock leveraged ETFs—from the current 2x down to 1.5x, and in extreme cases, as low as 1.1x—without going through separate product modification procedures, when market instability arises or urgent investor protection issues occur.

**This legislative approach references the "flexible leverage" mechanism implemented by the Hong Kong Securities and Futures Commission (SFC), which took effect on July 24. Hong Kong requires fund managers to flexibly adjust leverage ratios daily based on market conditions and disclose the target leverage for the next trading day after market close, with the minimum potentially dropping to 1.1x under extreme market conditions.** CSOP Asset Management has fully applied the flexible leverage structure to its 12 single-stock products listed in Hong Kong starting August 3.

Unlike the Hong Kong model, which relies primarily on autonomous adjustments by fund managers, South Korea's proposed "emergency action authority" grants regulators the power to intervene proactively. Its scope is not limited to single-stock leveraged ETFs but also covers various market participants. Additionally, measures such as "suspending new subscriptions" and implementing "single-price trading" for specific individual stocks are also under discussion.

However, the proposal still faces obstacles at the legislative level. Under current South Korean law, changing the leverage ratio of existing products is generally believed to require convening a unitholders' meeting, needing approval from more than half of the voting rights present and no less than one-quarter of the total number of issued beneficiary certificates. This makes it difficult to respond quickly to rapid market changes. Byun Je-ho, Director of the Capital Markets Bureau at the FSC, previously stated, "This requires convening a unitholders' meeting, which is even more difficult than holding a shareholders' meeting."

## Initial Measures Show Results, But De-leveraging Remains Insufficient

This regulatory upgrade is a continuation of a series of policy actions. Sixteen single-stock leveraged ETFs were listed on May 27, with their combined market capitalization rapidly expanding from 4.4 trillion won (approximately $3.1 billion) on the first day to 11.9 trillion won (approximately $8.3 billion) by July 15. Daily average trading volume also increased from 10.4 trillion won to 13 trillion won.

**Regulators introduced the first round of supplementary measures on July 16, including suspending new product listings, banning advertising, and extending mandatory pre-investment education to three hours. On July 29, the second round of measures was launched, requiring individual investors to hold 30 million won (approximately $21,000) in cash when making new purchases or adding positions.** On the first day these measures took effect on July 31, the trading volume of the 16 related products plummeted by 75.5% to approximately 3.05 trillion won, and their share of the total KOSPI trading volume dropped from an average of 33.8% in July to 6.4%.

However, institutional analysis suggests that single-day data is insufficient to judge policy effectiveness. A research report from Guotai Haitong pointed out that, looking at comprehensive margin balances and net subscription/redemption indicators for leveraged ETFs, the overall leverage level has seen limited decline, hovering around 50% on most trading days since July. Although the ratio of margin balances to deposit funds has fallen from previous highs, it is only at the 16th percentile of the ten-year historical range. Further improvement in overall leverage depends on a slowdown in capital inflows into leveraged ETFs and stabilization of deposit funds.

A research report from Huatai Securities judges that the current South Korean regulatory approach is to "control incremental growth and digest existing stock" to suppress market volatility, which remains at historically high percentiles. In the short term, the pace of regulation is accelerating, and the redemption risk of leveraged ETFs warrants attention. Korean stocks may maintain high volatility and oscillation before policies are fully implemented in mid-August, while in the medium term, fundamentals such as memory chips will return to logic.

## Policy Controversy: Consistency and Investor Rights Questioned

**The "emergency action authority" proposal has triggered significant backlash in the market. Critics argue that after approving product listings citing "investor choice" and "financial product diversification," regulators subsequently suspended new listings and banned advertising following large capital inflows. Now, adding leverage controls on top of deposit requirements and investment limits raises doubts about policy consistency.**

Protecting the rights of existing investors is also a focal point. If products purchased with an expectation of 2x returns are converted by regulatory decision into 1.5x products, investors will face terms different from those at the time of contract establishment. Kim Jin-young, an analyst at Kiwoom Securities, pointed out, "Leverage decisions are based on market conditions and capacity limits, creating the possibility of downward adjustments when unfavorable to investors. If leverage is cut from 2x to 1.5x on the eve of a sharp rise in the underlying stock, investors may fail to achieve expected returns."

Bae Jae-gyu, CEO of Korea Investment Trust Management and known as the "Father of Korean ETFs," holds a different view. He believes single-stock leveraged products should "die out naturally rather than being forcibly delisted," emphasizing that during periods of rising volatility and price oscillation, daily rebalancing and compounding effects can rapidly erode product value.

An insider in the financial investment industry emphasized, "If the government wishes to introduce emergency action authority, it must first clearly define what constitutes an 'emergency situation' at the legal level, including trigger timelines, lower leverage limits, decision-making procedures, and notification and exit arrangements for existing investors."

Market participants generally view the trigger standards for emergency authority and market predictability as key variables determining whether this mechanism can truly reduce volatility.

Risk Warning and Disclaimer

The market carries risks; invest with caution. This article does not constitute personal investment advice, nor does it take into account the specific investment objectives, financial status, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article align with their specific circumstances. Investors bear full responsibility for decisions made based on this content.

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