As the domestic stock market has entered a correction phase, losses have surged among retail investors who bought single-stock leveraged exchange-traded funds (ETFs) that track twice the daily returns of Samsung Electronics and SK hynix. With calls in political circles even for the delisting of leveraged ETFs, the financial authorities are considering measures to protect investors and stabilize the market.

According to data on the 8th from the Korea Exchange and Koscom ETF CHECK, as Samsung Electronics and SK hynix closed down 5-6% that day, the 14 single-stock leveraged products fell by roughly twice as much, 11-12%.

That day, prices for the seven Samsung Electronics leveraged products were in the 14,000-16,000 won range, and the seven SK hynix leveraged products were in the 15,000-19,000 won range, all below their 20,000 won listing price.

Over the past week (1-8), Samsung Electronics fell 11% and SK hynix 18%, sending the seven Samsung Electronics leveraged products down 24-26% and the seven SK hynix leveraged products down 38-39%.

In particular, as expectations for the two semiconductor stocks grew over the past week and money piled in, more investors were hit. Spurred by Samsung Electronics' July 7 preliminary second-quarter results and anticipation of SK hynix's American Depositary Receipt (ADR) listing on the 10th, roughly 2.5 trillion won flowed into leveraged products in the past week. But contrary to expectations, as the two underlying stocks plunged, leveraged investors ended up with losses more than double those of the underlying.

This is attributed to the "negative compounding" effect, in which principal erodes the more the underlying stock price whipsaws. Because leverage issuers or liquidity providers (LPs) buy more when the underlying rises and sell when it falls, volatility in the domestic market is amplified, creating a vicious cycle.

Anxiety is spreading among leveraged investors. Online communities of leveraged investors saw heated reactions such as "My 50 million won investment has been cut in half" and "Are those who did bit-too (borrowing to invest) still alive?"

In politics, criticism of the side effects of leverage continues, led by the opposition. Jang Dong-hyuk, leader of the People Power Party, said the previous day, "The KOSPI plunged, and the biggest cause was single-stock leveraged ETFs." People Power Party lawmaker Ahn Cheol-soo also urged delisting on the 6th, saying, "The "Samjeon-Nix" leverage has been a complete policy failure."

Financial authorities are struggling to draw up countermeasures. Deputy Prime Minister for the Economy and Minister of the Ministry of Economy and Finance Koo Yoon-chul said at the previous day's full session of the Fiscal and Economic Planning Committee, "We are well aware of concerns that leverage brings substantial volatility to the stock market," adding, "We are discussing how to address the issue." An official at the Financial Services Commission said, "We are keeping all options on the table regarding the measures being floated in the market."