FSS Issues 'Caution' Alert as Single-Stock Leverage Products See Losses Up to 36.9%

The Financial Supervisory Service (FSS) has issued a consumer alert regarding single-stock leverage products, urging investors to exercise caution.

The move comes as signs of overheating have emerged, with individual investors flocking to these products amid increased stock market volatility, leading to a twofold surge in market capitalization over a short period.

The FSS issued the "Caution" alert today (June 18), noting that the prices of single-stock leverage and inverse products are experiencing sharp fluctuations amid the heightened volatility in the stock market.

As of June 12, the market capitalization of single-stock leverage products reached 9.6 trillion won, a 2.1-fold increase in just 12 trading days from the 4.5 trillion won recorded at the time of their listing on May 27.

During this period, individual investors net purchased 8.2 trillion won worth of these products, concentrating volatility risks among retail investors.

In contrast, foreign investors net sold only 200 billion won.

The trend of seeking short-term profits was also prominent.

The average daily turnover rate stood at 122.5%, significantly higher than that of spot stocks (less than 1%) and domestic stock-type leverage/inverse exchange-traded funds (ETFs) (30.2%), with trading volume reaching 8.6 trillion won.

The gap between market prices and actual value is also widening.

There have been instances where trades were executed at prices significantly different from the Net Asset Value (NAV) immediately after the market opened or near the market close. On the day of listing, some investors purchased shares at high prices due to a lack of sell orders for SK Hynix.

Losses were particularly magnified during market downturns.

During consecutive downward trends, the maximum loss from the peak averaged 36.9%.

By product, the maximum decline for Samsung Electronics leverage products was 35.9% (from June 4 to 8), while SK Hynix products saw a decline of 38.0% (from June 2 to 8).

This was approximately double the maximum decline of the underlying assets, Samsung Electronics and SK Hynix, during the same period.

Another risk factor is that due to the product structure, losses can reach up to 60%, which is double the domestic stock price limit of ±30%.

The FSS emphasized, "Unlike diversified ETFs, single-stock leverage products are directly exposed to the stock price fluctuations of individual companies."

The regulator also warned that immediately after the market opens and near the market close, when liquidity providers (LPs) are exempt from the obligation to submit quotes, market orders may be executed at prices higher or lower than expected.

Investors should check the deviation rate before purchasing, as it can widen if there is a sudden influx of investors or a shortage of buy/sell orders.

For instance, if the NAV per share is 10,000 won but it is traded at 10,200 won in the market, and the market price subsequently adjusts to the NAV level, the investor could incur a loss equivalent to the deviation rate (+2%).

Furthermore, the FSS advised investors to check the spread between buy and sell quotes and to use limit orders rather than market orders.

Investors should also be aware that because these products are managed based on daily returns, repeated fluctuations can lead to a "negative compounding effect," causing actual returns to fall below expected returns.

"We will continue to monitor the investment trends of single-stock leverage products," the FSS stated. "We plan to issue additional consumer alerts if the risk of financial consumer harm increases."
※ Please note: This article was translated by AI and may contain errors.