The myth of the trillion-scale ETF has collapsed: SK Hynix has plummeted, Hong Kong's "2x long" products have been adjusted to "flexible leverage" products, and South Korea has restricted investments in leveraged ETFs.
South Korea's AI bull market has taken a sharp downturn, not only hitting SK Hynix's share price hard, but also forcing regulators in Hong Kong, China and South Korea to simultaneously tighten supervision on single-stock leveraged products.
With SK Hynix's share price falling nearly 46% from its June high, the net value of CSOP SK Hynix Daily Leverage (2x) Product, which once exceeded HK$1.3 trillion in size and was known as the world's largest single-stock leveraged ETF, has retreated by more than 80% cumulatively, with its market value evaporating by over HK$1 trillion.
Meanwhile, the Securities and Futures Commission of Hong Kong (SFC) announced the adjustment of the regulatory framework for single-stock leveraged and inverse products. Starting from August 3, the fixed 2x leverage will be changed to a dynamic leverage mechanism with a maximum of 2x, triggering extensive market discussions on investor protection and product investment value.
In South Korea, after the circuit breakers were triggered for two consecutive days this week, the Minister of Economy and Finance publicly apologized and announced further tightening of supervision on single-stock leveraged ETFs, considering setting the upper limit of individual investors' investment in such products at 20% of their total financial investment assets.
The 100-billion "star ETF" suffers a Waterloo
Over the past year, the AI computing power boom has made SK Hynix one of the most sought-after semiconductor stocks in the global capital market, and also spurred the explosion of Hong Kong's single-stock leveraged ETF market.
The CSOP SK Hynix Daily Leverage (2x) Product, listed in October 2025, quickly attracted capital by virtue of SK Hynix's leading edge in the HBM (High Bandwidth Memory) sector. Its size exceeded HK$1.3 trillion in only 8 months, making it the world's largest single-stock leveraged ETF by size.
However, high leverage also amplifies risks.
Since the South Korean market started deleveraging in late June, SK Hynix's share price has continued to decline. On July 29, although the company delivered record profits, its revenue and operating profit were both lower than market expectations. The share price plunged by more than 19% at one point during the trading day, and finally closed down 9.61%, with a cumulative drop of nearly 46% from its all-time high.
The corresponding 2x leveraged product suffered a more drastic pullback.
On July 29, the ETF plunged by more than 28% at one point during the trading day, and closed down nearly 14%; it has fallen by 78.77% cumulatively since the high on June 25, with a maximum drawdown of more than 86%.
The fund size also shrank rapidly.
As of July 28, the product's assets under management had dropped from the high of HK$132.072 billion in late June to HK$31.92 billion, evaporating by more than HK$1 trillion in just over a month, a shrinkage of about 76%.
However, a rather special phenomenon is that while the size shrank, the total number of fund units continued to increase, showing that a large amount of capital chose to continue subscribing during the decline, trying to seize the rebound opportunity.
Hong Kong regulator launches "flexible leverage" mechanism
Faced with the rapid expansion of the size of single-stock leveraged products and drastic market fluctuations, the SFC of Hong Kong has begun to adjust the regulatory framework.
On July 24, the SFC of Hong Kong revised the "Circular on Listed Structured Funds". Subsequently, CSOP announced that starting from August 3, 12 of its overseas single-stock leveraged and inverse products covering SK Hynix, Samsung Electronics, NVIDIA, Tesla and other targets will fully adopt the "flexible leverage" mechanism.
The biggest change of the new regulation is that the fixed leverage ratio is replaced by a dynamic target leverage.
Previously, the products maintained a fixed 2x (or -2x) leverage every day; after the adjustment, the fund manager can independently determine the daily leverage ratio according to factors such as market liquidity, swap transaction capacity and transaction cost, but the leverage shall not exceed 2x, the minimum can be as low as 1.1x, and the inverse product can be adjusted to a minimum of -1.1x.
At the same time, the product names will also be adjusted accordingly. For example, "CSOP SK Hynix Daily Leverage (2x) Product" will be renamed "CSOP SK Hynix Daily Leverage Maximum (2x) Product" to emphasize that its leverage is not fixed.
In accordance with regulatory requirements, the fund manager shall announce the target leverage level for the next trading day after the close of each trading day, and the leverage multiple for the first day of implementation on August 3 will be disclosed in advance on July 31.
The SFC of Hong Kong said that the optimization measures aim to balance market development and investor protection, and help investors fully understand that leveraged and inverse products are essentially single-day investment tools.
Data shows that by the end of May this year, single-stock leveraged and inverse products have accounted for 80% of the total asset size of Hong Kong's entire leveraged and inverse product market, with their trading volume accounting for 78%, significantly increasing their market influence.
The new mechanism sparks industry debates
Although the regulator emphasizes risk control, the market still has many doubts about the "flexible leverage" mechanism.
Many industry insiders believe that for existing investors, the biggest controversy lies in the change of the product's contractual attributes.
Previously, when investors purchased the product, they were essentially betting on the high-elasticity returns brought by the fixed 2x leverage. Now that the product is changed to "maximum 2x", it means that the manager may actively reduce the leverage during periods of drastic market fluctuations. If SK Hynix sees a rapid rebound afterwards, the net value of the ETF will recover significantly slower than before, and the payback period for investors may be further extended.
In addition, the new mechanism also raises the operation threshold for investors.
Since the leverage ratio may change every day, investors must check the target leverage multiple announced by the manager before each trading day, which increases the transaction complexity and understanding cost.
Some market participants are also worried that after fund managers are given greater discretion, the products may gradually lose their original high-elasticity characteristics in the future and evolve into "spot-like ETFs" with lower volatility, thus weakening their attractiveness to capital with high risk preference.
However, some risk control personnel of public offering funds believe that the regulatory adjustment has practical necessity.
For a 2x leveraged product with a size of hundreds of billions of Hong Kong dollars, once the underlying stock fluctuates drastically, market makers and swap counterparties may need to concentrate on buying and selling stocks in the spot market to maintain their risk exposure, which will further amplify the fluctuation of individual stocks and form a negative feedback.
The flexible leverage mechanism can reduce the market impact caused by passive rebalancing by actively reducing the leverage ratio, which helps to mitigate systemic risks.
South Korea simultaneously tightens supervision on single-stock leveraged ETFs
While Hong Kong is adjusting its regulations, South Korea has also begun to fully tighten supervision on leveraged ETFs.
On July 29, South Korea's KOSPI index and KOSDAQ index both fell by more than 8% during the trading day for the second consecutive trading day, triggering the circuit breaker mechanism, which is a rare situation in the history of the South Korean market.
That evening, South Korea's Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho urgently held an "F4 meeting" composed of the Ministry of Economy and Finance, the Bank of Korea, the Financial Services Commission and the Financial Supervisory Service to discuss market stabilization measures.
According to reports from South Korean media and Reuters, South Korean regulators are considering limiting the size of individual investors' investment in single-stock leveraged ETFs, with the proposed upper limit set at 20% of individual financial investment assets; at the same time, they will increase transaction costs and introduce simulation trading requirements to strengthen investor suitability management.
Previously announced measures such as raising the minimum margin to 30 million won will also be officially implemented on July 31.
It is worth noting that Choo Kyung-ho also made a rare public apology that day, admitting that the regulators did not fully consider the potential risks when approving single-stock leveraged ETFs, and said that new regulatory measures will be launched if necessary.
Analysts: The AI boom remains strong, but transaction risks have risen significantly
Although SK Hynix's revenue and profit in the second quarter both hit record highs, they failed to meet the extremely high expectations of the market, which eventually became an important trigger for this round of market adjustment.
Industry insiders believe that the South Korean stock market rose rapidly under the impetus of multiple factors such as the AI industry, high-leverage capital and policy encouragement, and the recent continuous deleveraging by regulators has significantly tightened the market's capital liquidity, exacerbating stock price fluctuations.
Analysts pointed out that in the medium and long term, the fundamentals of South Korea's semiconductor industry remain relatively robust, and leading enterprises such as SK Hynix and Samsung Electronics still have strong profitability. But in the short term, multi-layer leveraged funds are concentrated on betting on the semiconductor sector, coupled with changes in the global interest rate environment and market risk appetite, the South Korean stock market may still maintain high volatility.
The launch of the flexible leverage mechanism in Hong Kong and the further restriction of single-stock leveraged ETFs in South Korea also mean that the regulatory thinking is gradually shifting from encouraging innovation to risk control.
For investors, while high-leverage products bring the possibility of high returns, they also need to pay more attention to the daily leverage changes of products, compound interest effects, and the risk of net value deviation that may occur under extreme market conditions.
This article does not constitute personal investment advice, does not represent the position of the platform. The market is risky, investment needs to be cautious, please make independent judgments and decisions.
This article is from the WeChat official account "Wall Street CN", Author: Yang Chen, published with authorization from 36Kr.