Volatility driven by leveraged ETFs and “debt investment” is burdening individual investors with the costs.

Lee Hyo-seop, head of the financial industry division at the Korea Capital Market Institute, 7in 12said that the recent expansion of leveraged exchange-traded funds (ETFs) and margin lending (“debt investment”) has increased volatility in the stock market. He pointed out that this is leading to hedging costs and losses for individual investors.

He explained that the process of rebalancing the underlying assets of leveraged ETFs and the margin lending structure at securities firms are mechanisms that amplify volatility. He emphasized that the costs borne by fund managers or market makers to manage risk are ultimately passed on to individual investors.

He also said that repeated cases of losses among individual investors are increasing. He stated that damage is especially concentrated in positions held for the short term in leveraged products or in positions that have increased leverage through debt investment.

From a policy perspective, he pointed out the need for the government and regulators to improve the institutional framework. He said that while policy contributions such as Value-Up exist, institutionalization is urgently needed to escape chronic undervaluation.

Executive Director Lee warned that if the current structure continues without institutional improvement, the cost burden on individual investors will keep rising. The remarks were made public on 7month 12day.