South Korean regulators roll out new rules to throttle high-risk leveraged ETFs frenzy

The Financial Supervisory Service (FSS) has unveiled new rules to curb the frenzied buying of high-risk leveraged ETFs among South Korean investors. The regulator stated on Sunday that, as of December 15, local investors will be required to complete an hour-long online training session before investing in inverse or leveraged ETFs listed abroad. 

The FSS pointed out that investors seeking to purchase derivatives products in foreign markets will also have to sit through a three-hour mock-trading program in addition to the online course. The regulator is looking to align the regulations for investing in these products overseas with those for locally listed ones. 

South Korean investors are reportedly known for their risk-taking, and they have been particularly flooding into U.S.-listed ETFs that offer exposure to skyrocketing tech stocks. Apparently, a few countries can match the frenzy seen in South Korea, where investing in overseas stocks is viewed as a means to accumulate wealth quickly.

Kim says new policy teaches compounding effects

Bora Kim, the head of APAC strategy at Leverage Shares Plc, stated that the new policy will enable South Korean retail investors to recognize the compounding effects and strategies of investing in leveraged overseas ETFs. She added that the programs will address what South Korean investors have been ignoring and could impact risk-neutral retail investors. Meanwhile, the overall appetite is expected to remain the same. 

Data compiled by Bloomberg shows that the direct investment made by South Korean retail investors in U.S. ETFs and Stocks has hit a new ATH this year. Currently at $28.3 billion so far in 2025, South Korea’s retail investors added $6.9 billion in October alone, an all-time monthly high since 2011.

Net U.S. Stocks bought by South Korean retail investors from 2016 to date. Source: Bloomberg

Kim observed that leveraged ETFs also amplify the returns and losses investors can get by directly buying U.S. stocks. She noted that inverse ETFs rise when the key index or security plummets, and vice versa.

September sees moderate decline in overseas ETF activity

Data retrieved from ETFGI, an independent research and consultancy company specializing in global ETF industry trends, indicates that September saw a modest decline in overseas ETF activity among South Korean retail investors.

In September, 21 out of the top 50 overseas securities bought by South Korean investors were listed in the U.S., representing a slight decline from August’s 23 ETFs. September’s ETF activity was also lower than July’s (22) and June’s (26), indicating a slight cooling in ETF concentration among top overseas investment picks.

Meanwhile, in terms of trading volume, South Korean retail investors bought $9.8 billion in overseas ETFs in September. The peak month so far this year was April, which recorded a record $12.08 billion in ETF purchases. The largest single buy was $2.31 billion of the SPDR S&P 500 ETF Trust (SPY).

Specifically, they purchased $1.27 billion in ETFs from the Direxion Daily Semiconductor Bull 3X SHS ETF and another $1.01 billion from the Direxion Daily TSLA Bull 2X Shares. South Korean retail investors also purchased over $920 million in ETFs from the Invesco QQQ Trust SRS 1 ETF and another $766 million from the Vanguard S&P 500 ETF SPLR. 

ETFGI also noted that 14 of the top 21 ETFs provided inverse or leveraged exposure, reflecting continued interest in calculated trading strategies. However, the ETF research firm pointed out that only 22.66% of the ETFs listed on the South Korean Stock Exchange offer inverse and leveraged exposure, which accounts for nearly 6.99% of the assets in South Korea’s ETF industry.

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