Tripling the cash deposit cut Korea's single-stock leveraged ETF trading by 92%

The office of Rep. Kim Yong-man, a Democratic Party member of the National Assembly's National Policy Committee, compared the 22 trading days before July 31 with the 21 trading days from that date on ^[1][3]. Over that window about 11.26 trillion won of daily turnover disappeared ^[2]. The short side shrank fastest. The two single-stock inverse 2X funds were about 29% of the 16 funds' turnover before the change and about 19% after ^[3]. Their turnover ratio fell to 125.0% from 1,110.4%, which is still about 21 times the 5.9% the leveraged funds now record ^[5][4].

A rule that only startled traders would show volume creeping back through August. The weekly figures for the 14 leveraged funds show no recovery: 870 billion won a day in the first week, then 620 billion, 790 billion and 600 billion won, against 6.44 trillion won a day over July 27-30 ^[6]. Turnover on Aug. 31 was 530 billion won, about 8% of the pre-rule rate ^[5].

Tripling the minimum cash deposit to 30 million won is a threshold an account has to meet before it can trade these funds ^[1][2]. It is not a charge per trade. Accounts that clear it trade on the same terms as before, and a trader who wants a doubled daily bet can still find one in products the single-stock rule does not name ^[2].

September supports three readings. The first is that the rule cooled retail speculation and the volume is simply gone. The second is displacement: the appetite for doubled daily bets moved into index funds, and retail's 222.2 billion won of net purchases in two KODEX inverse funds from Sept. 1 to 23 fits that reading ^[8]. The third is a change of hands. Retail sold a net 540 billion won of KODEX Leverage and KODEX SK hynix Single Stock Leverage, the two funds foreigners bought most ^[7]. Only KODEX 200 saw heavier retail selling, at 410.2 billion won ^[10]. Foreigners bought 481.8 billion won across three leveraged funds, two of them SK hynix single-stock products ^[6][8].

I think the second and third readings fit the evidence better than the first. The rule shrank trading in the products it names, yet September's largest domestic retail ETF purchase, excluding U.S. index funds, was still a doubled bet, placed against a rising index ^[9]. The case against me is scale. Net inverse buying of 222.2 billion won over 23 days is small next to the daily turnover that vanished, though net buying and gross turnover measure different things ^[8][2]. The data from Kim's office does not include turnover in index-based leveraged and inverse funds. A rise there after July 31 would confirm displacement, and a flat line would favour cooling. Seoul Economic Daily's own account flags concern about spillover to other products, and it reports the argument that the volume drop alone does not show investor protection has improved ^[12].

Retail also paid for the daily reset. Twice the KOSPI 200's 5.06% gain is 10.12%. KODEX Leverage returned 0.88 points less than that, and KODEX 200 Futures Inverse 2X lost 2.87 points more than a plain minus-two-times ^[9]. Both funds track a multiple of the daily move, so over three weeks their returns drift away from a clean multiple of the index ^[8][9]. In September the gap was more than three times larger for the inverse fund ^[10].