[Lee Jun-seo, Professor of Business Administration at Dongguk University] Controversy is running high over single-stock leveraged and inverse products based on SamsungElectronics(005930)and SK hynix(000660). As of the 14th, these products accounted for only 0.36% of the combined market capitalization of the two companies’ common stock, yet their trading volume reached 59.8%. Even when compared to the KOSPI as a whole, their share of market capitalization was 0.18%, while their share of trading volume reached 38.4%. The daily turnover rate also stood at 170.6%. In effect, their influence on the market has grown disproportionately large relative to their size.

Leveraged products track the daily return of the underlying asset at twice the rate. To meet their target leverage ratio, asset managers repeatedly rebalance their portfolios—buying more when stock prices rise and selling more when they fall. As volatility increases, the volume of chase trading swells toward the market close, and these orders can in turn amplify the price swings of the underlying stock, further exacerbating market volatility. This is why single-stock leverage products have recently been singled out as the main culprits behind the sharp swings in the KOSPI.
However, it would be an overstatement to pin the blame for recent volatility solely on single-stock leveraged products. The source of volatility lies in the sharp price movements of SamsungElectronics and SK hynix, which account for a large share of the market capitalization. Rather than creating new volatility, single-stock leveraged products function more as mechanisms that amplify movements that have already gained momentum. Instead of eliminating these products, the focus should be on cutting off the pathway through which market overheating spreads into market shocks.
First, the total volume of new issuances must be managed to ensure that capital inflows do not immediately lead to an escalation of market shocks. As new issuances increase, so do exposure to the underlying assets and the burden of future rebalancing. During periods of market overheating, it is necessary to consider temporarily restricting new issuances and imposing a consolidated limit on all products tracking the same underlying asset.
The structure whereby rebalancing orders are concentrated in the spot market at the end of the trading day must also be changed. By enhancing the liquidity of individual stock futures and utilizing total return swaps (TRS) and block trades to distribute orders, the impact on the underlying stock can be reduced. In situations where volatility spikes abnormally, mechanisms should also be considered that allow for flexible management of the timing and methods of rebalancing, within the limits of maintaining the tracking obligation.
A safety net is also needed to curb excessive short-term trading. A separate volatility mitigation mechanism (VI) should be triggered based on the ratio of trading volume in leveraged products to the trading volume of the underlying stock—rather than price volatility—and barriers to entry should be raised by increasing margin requirements and strengthening investor education. Furthermore, costs incurred during the process of new fund launches and rebalancing should be reflected in total fees, and trading commissions should be raised to reduce the incentives for frequent turnover and high-frequency trading.
There is no need to deny the very purpose behind the introduction of single-stock leveraged products. However, the system must be redesigned to account for the high turnover rate and the tendency toward trend-following trading in the domestic market. The issuance of such products should be restricted, the impact of rebalancing should be dispersed, and overheated trading should be curbed. Preserving the products’ functionality while severing the links that amplify market shocks is a practical solution that achieves both market stability and investor protection.