South Korea is reviewing leveraged ETFs after a decline in semiconductor stocks inflicted heavy losses on thousands of retail investors. According to a July 29 CNBC report, Finance Minister Koo Yun-cheol accepted lawmakers’ demand for an apology, acknowledging that the products had been introduced without sufficiently careful consideration of their consequences.

The decisive step came on May 27, when South Korea’s market authorized leveraged exchange-traded funds linked to individual stocks. Since then, Korean retail investors have made net purchases of 14 trillion won, equivalent to about $9.7 billion, according to KB Financial Group data cited by CNBC. Foreign investors purchased only around 2 trillion won on a net basis.

The gap highlights the domestic scale of the speculative rush. Korean savers poured money into products designed to amplify the daily movement of their underlying shares, giving them greater exposure to the Seoul stock market’s rally. But the same leverage that had multiplied potential gains accelerated losses when the market reversed direction.

The turning point came with a correction in the Kospi, led by declining technology stocks. According to CNBC, the South Korean index, which had previously ranked among the world’s strongest-performing equity markets, lost nearly 35% over the past month. Concerns about the chip industry abruptly ended a rally that had also been fueled by expectations surrounding artificial intelligence.

The most serious consequences affected ETFs based on shares of Samsung Electronics and SK Hynix. Both companies had benefited from the semiconductor rally driven by AI-related demand. The subsequent reversal exposed their leveraged products to even greater volatility than the underlying shares themselves.

The corresponding product linked to Samsung Electronics has lost nearly 75% since reaching its peak on June 3.

These results illustrate the specific risks associated with leveraged products that reset daily, whose performance can become particularly damaging during periods of sharp market swings. In South Korea, the high participation of small investors turned the chip-sector correction into a political issue that reached Parliament directly.

During a parliamentary session, Koo Yun-cheol responded to calls to accept responsibility for how the products had been authorized. The matter, however, did not end with the minister’s apology. Lee Eog-weon, chairman of the Financial Services Commission, said the authority was considering restricting access to leveraged ETFs tied to individual stocks.

Lee told the National Assembly’s Political Affairs Committee in Seoul that eligibility requirements could be raised so that only professional investors would be allowed to buy the products. The statement, reported by CNBC via the Seoul Economic Daily, suggests that regulators are considering a far stricter barrier than the framework introduced in late May.

Authorities are also considering reducing the products’ leverage multiplier. Lee said leverage equal to twice the underlying stock’s daily movement was excessive and that lowering it could help curb volatility. Such a change would require legislation from lawmakers, shifting part of the response from the regulator to the National Assembly.

The Financial Services Commission also plans to assess the implications for investors, including procedures involving general meetings of beneficiaries, while reviewing any proposed legislation. The timetable, eligibility thresholds and possible new leverage level have yet to be determined. Meanwhile, losses on products linked to Samsung and SK Hynix continue to fuel debate over investor protection and freedom of access to higher-risk financial instruments.