The head of South Korea's Financial Supervisory Service expressed regret over extreme intraday volatility in the KOSPI driven by leveraged ETFs [1].

This instability threatens market equilibrium because a small number of semiconductor giants dominate the national index, making the entire economy sensitive to U.S. tech shifts.

Samsung Electronics and SK Hynix together account for approximately 60% of South Korea’s total market capitalization [1]. This concentration creates a feedback loop where leveraged ETFs amplify the gains and losses of these two stocks, leading to erratic price movements across the board.

Market instability has reached critical levels this year. The KOSPI Volatility Index reached a peak of 97.99 [1]. To curb the chaos, the sidecar circuit-breaker mechanism has been triggered 31 times so far this year [1].

Price swings have been particularly severe recently. The KOSPI peaked above 9,000 points earlier this year but fell to the 7,600 range on the previous Thursday [1]. The index then rebounded more than five% to recover the 8,000 level [1].

Yeom Seung-hwan, a director at LS Securities, said that the popularity of ETFs has intensified this trend. "Because these two companies account for nearly 60% of the total market capitalization, their concentration is natural, and money flows because ETFs are popular," Yeom said [1].

The regulatory head's admission of regret suggests a growing concern that the current structure of leveraged products may be incompatible with the high concentration of the South Korean market.

“The KOSPI Volatility Index reached a peak of 97.99”

The situation highlights a systemic vulnerability in the KOSPI's structure. When a few companies represent a majority of the market value, leveraged financial instruments do not just track the market—they can drive it. The frequent triggering of circuit breakers and the extreme volatility index suggest that the market is struggling to absorb the rapid capital flows associated with semiconductor-linked ETFs, potentially necessitating new regulatory limits on leverage to prevent a flash crash.