South Koreans, known for their frequent protests, have taken to the streets once again. Previously, it was over wage hikes at Samsung, but this time, the trigger is a brutal stock market crash that has left retail investors reeling from massive losses, culminating in a symbolic display of funeral wreaths to mourn their evaporated accounts.
On July 29th, a startling scene unfolded in front of the National Assembly building in Yeouido, Seoul. Over 30 white funeral wreaths were lined up neatly on the sidewalk, bearing ribbons with slogans like "Is investor protection just empty words?" "Abolish single-stock leveraged ETFs," and "We'll 'get even' with our votes."
This protest, organized by the Korean individual investor group "Assembly for the Normalization of the Stock Market," directly targeted single-stock leveraged ETF products linked to Samsung Electronics and SK hynix. Investors argue that these high-leverage financial instruments amplified losses during the market's violent swings, worsening the destruction of their wealth.
A deeper look at the catalyst for this protest
The protest is a direct response to two consecutive days of "epic" crashes in the Korean stock market. On July 28th, the KOSPI index plummeted over 8%, triggering a circuit breaker. The following day, July 29th, the index nosedived as much as 12.63% in intraday trading before closing down 5.98%. This marks the first time in South Korea's stock market history that circuit breakers were triggered on two consecutive trading days.
During this sell-off, single-stock leveraged ETFs tracking Samsung Electronics and SK hynix were hit the hardest. Because these products aim to deliver twice the daily return of the underlying stock, when SK hynix shares plunged over 18% intraday and Samsung Electronics fell by nearly 13%, the related leveraged ETFs saw losses expand to roughly 25%. For the many Korean retail investors heavily betting on the semiconductor sector, this was nothing short of a financial massacre.
The mechanics of a "retail investor destroyer"
A single-stock leveraged ETF is a high-risk financial product that uses derivatives to amplify the daily price movement of a single stock. For example, a 2x leveraged ETF theoretically aims to deliver double the daily return of Samsung Electronics or SK hynix. If the underlying stock rises 10%, the ETF is designed to rise about 20%. Conversely, if the stock falls 10%, the ETF is designed to fall about 20%.
However, the biggest risk of these products goes beyond simple "loss amplification." First, there is the leverage amplification effect. In a sustained downtrend, investor losses can accumulate rapidly. If the underlying stock falls for several days, the net asset value of the leveraged ETF can shrink far more than expected. Second, a negative compounding effect is at play. Because leveraged ETFs reset their exposure daily, even if the underlying stock eventually returns to its starting price, the ETF's net asset value can be eroded below the initial level due to the daily volatility decay.
Market observers also question whether these products, despite being called "ETFs," are fundamentally different from the traditional concept of an ETF, which emphasizes diversification to reduce risk. Traditional ETFs typically hold a basket of assets, while single-stock leveraged ETFs are essentially concentrated bets on a single company, creating extreme risk concentration.
Diverse reactions: from calls for abolition to cautious deliberation
Retail investors' outrage is palpable: The group "Assembly for the Normalization of the Stock Market" describes single-stock leveraged ETFs not as ordinary investment tools but as "weapons" that magnify risk. The slogans on the funeral wreaths clearly state their demand: abolish single-stock leveraged ETFs. Investors believe that regulators allowed these high-risk leveraged products to be sold on a large scale to ordinary investors without adequately disclosing the risks, which is a major reason for their financial losses.
The presidential office deflects blame: Kim Yong-beom, chief of the presidential policy office, who is accompanying President Lee Jae-myung on a visit to Brazil, responded by saying, "Leveraged ETFs may have made volatility more pronounced, but it is not accurate to attribute all the problems to them." He pointed to structural factors behind the recent market crash, including uncertainty over AI investment returns, pressure from semiconductor companies in other countries, and the fact that the high weighting of Samsung Electronics and SK hynix in the Korean market amplifies external shocks. Kim stated that the Financial Services Commission and the Financial Supervisory Service will conduct a review from the perspective of the overall market structure.
The National Assembly is divided: Strong criticism has also emerged from within the ruling Democratic Party. Oh Ki-hyung, chairman of the National Assembly's K-Capital Market Special Committee, directly called the product a "gambling-style high-risk product that destroys the diversification characteristic of ETFs" and criticized that "labeling a high-risk derivative financial product as an ETF is inappropriate." However, committee secretary Kim Nam-geun expressed a more cautious view, arguing that "hasty discussion of delisting would damage the stock market's credibility" and advocating for "measures to reduce the product's attractiveness and volatility." Another lawmaker proposed raising the minimum deposit requirement to 50 million won.
Financial regulators express regret: A statement by Lee Chan-jin, head of the Financial Supervisory Service, has become a focus of Korean media: "I regret that I didn't block it, even if I had to lie down to do so." This remark reflects the awkward position of the regulator in this controversy. The rapid expansion of single-stock leveraged ETFs in the Korean market had been controversial due to their high-risk nature, and the market crash has forced regulators to confront the question of whether these products are suitable for widespread participation by ordinary investors.
Closing the barn door: an emergency regulatory brake
In response to the escalating dispute, South Korean financial authorities have taken action. Starting July 31st, individual investors wishing to newly purchase or add to their holdings of single-stock leveraged products must have a minimum cash deposit of 30 million won (approximately 160,000 yuan). Financial Services Commission Chairman Lee Eok-won stated that this measure is expected to slash the number of related trading accounts from about 100,000 to 10,000, reducing trading volume by more than 60%. Furthermore, authorities are studying additional tightening measures, including lowering the leverage multiple, restricting new purchases to professional investors, and even setting a cap on individual purchases. This series of measures effectively cuts off the flow of funds to these high-risk products.
This incident raises a more fundamental question: is investor protection a promise that remains a slogan, or is it a responsibility that must be backed by real financial commitment? Korean retail investors have historically been known for their aggressive style, favoring leveraged trading and derivative bets, and they were a significant force driving the Korean stock market during the pandemic. However, when the tide goes out, they are often the first to be exposed to risk and the hardest hit by losses. If a financial product is, from its inception, destined to impose disproportionate risk on non-professional investors, what responsibility should the parties who approved its listing and circulation bear?
The row of white funeral wreaths in front of the National Assembly in Yeouido is not so much a demand to abolish a single product as it is a challenge to the entire market system: when "investor protection" is just a promise made with words, who should pay for the accounts that have been wiped out?