This is the second installment of the previous article.
Recently, there has been widespread criticism in the market, from the government and individuals to stock YouTube creators, blaming single-stock leveraged ETFs of Samsung Electronics and SK Hynix for their high volatility. Some even go so far as to blame the Kosdaq market's marginalization on these ETFs.
The government is also considering measures such as delisting or strong trading restrictions. But is this criticism consistent with financial mechanisms and capitalist market logic? We need to carefully examine this issue.
1) The argument that the increased daily price fluctuations of Samsung Electronics and Hynix are abnormal. While there are many stocks on the Kosdaq market with daily price swings exceeding 10%, no one criticizes them or calls for regulations. There is no rule in financial markets stating that large-cap stocks should have extremely limited volatility.
The volatility observed when megaton-level capital, such as global macro funds, passive funds, short covering, and short selling, is involved in large-cap stocks, especially during momentum build-up, is a common phenomenon seen in global big techs like Nvidia and Tesla.
Just as a crowd gathers around a globally popular star, attention concentration can lead to price discovery and volatility. This is a natural cost that the market has to bear (according to AI).
2) Trading in leveraged ETFs during the day mainly involves investors exchanging positions with each other within the circulation market. This does not immediately trigger real-time buying or selling of underlying stocks. Asset managers' adjustments of leverage ratios through spot and futures rebalancing are primarily concentrated at the end of the trading day.
3) A recent article pointed out that the trading volume of leveraged ETFs for Micron and Nvidia is less than half that of the underlying stock, arguing that leveraged trading in Korea is excessive. Are American investors inherently more virtuous and less inclined to trade leveraged ETFs? The US market has no restrictions on individual stock option trading. Investors seeking high returns or hedging often disperse into the options market. Consequently, options market makers engage in continuous real-time delta hedging by buying and selling underlying stocks to manage risk. In essence, the denominator (underlying stock trading volume) in the US is larger due to options trading, not because leveraged ETFs are less popular. Ignoring structural differences and simply comparing numbers leads to distorted logic.
4) Ironically, since the launch of single-stock leveraged ETFs on May 27th, the share prices of Samsung Electronics and Hynix have fallen by nearly 30% from their highs. The public, media, and government are blaming leveraged ETFs solely based on the outcome.
If the share prices of these two stocks had surged after the product launch, no one would have questioned the volatility. Instead, they would have praised it as an "innovative financial product that provides exceptional investment opportunities for individual investors."
Conclusion: While I sympathize with some market concerns regarding the launch purpose and timing of single-stock leveraged ETFs, volatility itself is not a sin. However, it was a government oversight to allow this product to become an exclusive channel for all speculative demand without institutional safeguards.
Removing barriers to individual stock option trading: Lowering the entry barriers for individuals to participate in the options market will diversify demand and disperse price shocks concentrated on the underlying market.
Realistic alternatives for investor protection: In the short term, controlling excessive debt environments that lead to "leverage on leverage" through margin trading or credit transactions associated with leveraged ETFs is sufficient as these products are derivatives.
Instead of neglecting fundamental market structure improvements and sacrificing specific financial products to avoid criticism, a regulatory approach focused solely on solutions should be halted.
That's it. (Some sentences were written with the help of AI)
