South Korea Tightens Single-Stock Leverage ETF Controls Amid 50% Tracking Error in SK Hynix Product

According to South Korean financial authorities, the Financial Services Commission, Financial Supervisory Service, and Korea Exchange are reviewing measures to stabilize tracking errors on single-stock leveraged exchange-traded funds (ETFs) on July 5. The move follows concerns over investor losses caused by widening gaps between ETF net asset values and market prices.

Last month, single-stock leveraged products reported 57 tracking error disclosures—representing 4.5% of the 1,268 total disclosures. The authorities cited the June 8 case of SK Hynix leveraged ETF managed by Korea Investment Trust Management, where the product surged roughly 50% despite the underlying stock falling nearly 8%. Authorities are evaluating stricter liquidity provider evaluation criteria and potential penalties for asset managers in future product listings.