Samsung Electronics and SK hynix Leverage Products Suffer 36% Losses... FSS Issues Consumer Alert

Financial authorities have issued a consumer alert regarding single-stock leverage and inverse products based on Samsung Electronics and SK hynix, which are ranked first and second in market capitalization. This action follows a period of heightened volatility in the domestic stock market, during which leverage products experienced a drop of over 36% amid consecutive market declines.

On June 18, the Financial Supervisory Service (FSS) announced that it had issued a ‘Caution’ level consumer alert, stating, “Single-stock leverage and inverse product prices have been experiencing rapid fluctuations over short periods amid expanding stock market volatility.” Single-stock leverage products are designed to track twice the daily return of an individual stock.

The market capitalization of single-stock leverage products surged from 4.5 trillion won at their initial launch on May 27 to 9.6 trillion won as of June 12, increasing about 2.1 times in just 12 trading days. During this period, individual investors made net purchases totaling 8.2 trillion won. Consequently, volatility risks have been heavily concentrated among individual investors. The pursuit of short-term arbitrage was also notable, with the average daily turnover rate reaching 122.5%.

Losses expanded significantly during downward market trends. The maximum loss from the peak during consecutive declines averaged 36.9%. By product, the maximum decline for the Samsung Electronics leverage product was 35.9% (from June 4 to June 8), and for the SK hynix product it was 38.0% (from June 2 to June 8). This is about twice the maximum drop of the underlying Samsung Electronics and SK hynix stocks over the same period. In addition, there were cases where trades were executed at prices that deviated significantly from the net asset value (NAV) either immediately after market opening or near the market close.

The FSS emphasized, “Unlike diversified ETFs, single-stock leverage products are directly exposed to the price fluctuations of individual companies’ stocks.” Due to their structure, these products can incur losses of up to 60%, which is twice the daily price limit (±30%) for domestic stocks.

The FSS also cautioned that in situations where there are insufficient buy or sell quotes, investors should be careful when placing market orders. Although liquidity providers (LPs) submit quotes for leverage products, they are exempt from this obligation from 9:00 to 9:05 a.m. at market open and from 3:20 to 3:30 p.m. near market close. During these times, if the underlying asset price fluctuates sharply or if there is a sudden influx of investment demand, market orders may be filled at prices much higher or lower than expected.

The FSS stated, “We will continue to monitor investment trends in single-stock leverage products,” adding, “If the risk of consumer harm increases, we plan to issue additional consumer alerts.” The consumer alert system is designed to proactively inform consumers of potential risks to prevent the spread of financial consumer damage, with alert levels in the order of Caution, Warning, and Danger.

This content was produced with the assistance of AI translation services.