South Korea’s benchmark KOSPI index is increasingly resembling a high-stakes casino, according to prominent lawmakers who are now calling for the delisting of single-stock leveraged exchange-traded funds (ETFs). Ahn Cheol-soo, a member of the People Power Party and former presidential candidate, issued what is being called the 'strongest warning' yet, labeling these financial instruments a total policy failure that erodes national wealth.
The controversy centers on ETFs that track specific giants like Samsung Electronics and SK Hynix with double-leveraged returns. These products use mechanical rebalancing to maintain their leverage ratios, a process that forces them to buy aggressively when prices rise and dump shares when they fall. This pro-cyclical behavior has been blamed for amplifying the 'rollercoaster' volatility currently plaguing Seoul’s equity markets.
The scale of the instability is historically unprecedented. So far this year, South Korea has triggered its 'sidecar' mechanism—designed to pause program trading—31 times, a figure that dwarfs the 26 instances recorded during the 2008 global financial crisis. Furthermore, the market has seen five full-market circuit breakers, nearly half of all such events since the system was introduced in 2000.
Regulators are facing intense heat for allowing these products to reach retail investors in the first place. Lee Chan-jin, Governor of the Financial Supervisory Service, recently expressed regret over the initial approval of single-stock leveraged ETFs, acknowledging that their negative externalities have expanded significantly. Lawmakers are now demanding the dismissal of top financial regulators for what they characterize as a failure to protect the broader economy.
The systemic risk is exacerbated by the sheer dominance of a few firms. Samsung Electronics and SK Hynix together account for more than half of the total market capitalization of the KOSPI. In July, while these two stocks were the most traded on the exchange, four of the other top ten most active securities were leveraged or inverse products tied directly to their performance, creating a feedback loop of volatility.
The Bank of Korea has also weighed in, warning that these ETFs reinforce one-sided capital flows and deepen market concentration. As retail 'ant' investors increasingly treat these highly speculative tools as long-term holdings, policy makers fear that the KOSPI’s reputation as a reliable global market is at stake. The push to delist these instruments highlights a growing consensus that financial innovation has, in this case, compromised market stability.