The government is moving to craft extraordinary measures to turn back the tide of South Korean retail investors. It is reviewing a plan to raise the leverage multiple for exchange-traded funds (ETFs) it has long tightly restricted to 3x from the current 2x and to allow the launch of single-stock leveraged products.

On Jan. 21, the financial investment industry said the Financial Services Commission is discussing the introduction of a "Korean-style 3x leveraged ETF" as a countermeasure. It has judged the recent surge in domestic investors' concentration in U.S. leveraged ETFs as one of the main causes of foreign-exchange instability and a decline in domestic stock market liquidity.

According to tabulations by the Korea Securities Depository, as of November 2025, South Korean individual investors held $15.6 billion (about 23.1 trillion won) of U.S. stock leveraged ETFs. That is a 26-fold increase from just 5 years earlier.

In particular, their funds account for 14.2 percent of total net assets of U.S. stock leveraged ETFs (about $110 billion), giving them significant influence. South Korean investors' appetite for leverage has effectively made them major players with a meaningful share even in the U.S. market.

Most striking are ultra-high-risk products. ProShares UltraPro QQQ (TQQQ), which tracks three times the Nasdaq 100 index's daily moves, and Direxion Daily Semiconductor Bull 3X (SOXL), which tracks three times a semiconductor index, are among the top holdings by amount held.

Looking at the major 3x leveraged ETFs that are winning the most favor among South Korean retail investors, the concentration becomes even more pronounced.

TQQQ, with net assets of $30 billion, has a South Korean ownership share of about 11.2 percent. SOXL, a bet on the semiconductor cycle, has about $3.4 billion held by South Koreans, showing a distorted structure in which South Koreans hold 25 percent, or one quarter, of total net assets.

Direxion Daily Tesla Bull 2X (TSLL), which tracks twice the volatility of global electric vehicle maker Tesla, has about 44 percent of its total net assets held by South Koreans, effectively making it little different from a "Korean Tesla fund".

As this situation continued, the government has begun reviewing sweeping regulatory easing. In South Korea, leverage investing in the stock market is limited to 2x, and even that comes with high entry barriers such as required education and minimum deposits.

By contrast, the U.S. market allows investment in 3x leveraged products without particular restrictions, and an analysis says many young investors seeking high returns have left in large numbers.

Kim Yong-beom (김용범), head of policy at the presidential office, is reported to have told the FSC to review the matter in recent discussions with executives at securities firms and asset managers, saying, "Why do we not allow domestically what is possible on Nasdaq?"

A plan the FSC is currently reviewing is expected to include allowing leverage products based on individual stocks such as Samsung Electronics and SK Hynix and raising the leverage multiple for index-tracking products to 3x.

A securities industry official said, "One of the key reasons domestic investors are leaving for the U.S. market is the lack of a variety of highly volatile products." The official added, "If 3x leverage products based on Samsung Electronics or the KOSPI 200 come out domestically, they would help prevent dollar outflows and help increase trading value in the domestic stock market."

The government also expects the measures to help stabilise the exchange rate. It calculates that they could partially ease upward pressure on the exchange rate that arises as retail investors sell won and buy dollars to purchase U.S. stocks.

But criticism is also strong. Some in the financial investment industry point to the government effectively encouraging individuals to take high-risk investments.

In particular, leveraged ETFs can significantly underperform the underlying index's return when held long term due to the "volatility decay" effect. Over the past year, while the Nasdaq ETF QQQ rose about 29 percent, the 3x leveraged TQQQ rose 60 percent, short of the arithmetic expectation of 87 percent.

A financial investment industry official said, "As long as U.S. stock market fundamentals are strong and won weakness continues, it will not be easy to make retail investors return simply by introducing products." The official suggested, "Along with regulatory easing, fundamental value-up efforts by domestic companies should be pursued in parallel."