As the stock prices of NVIDIA and Tesla, which are the most held U.S. stocks by domestic investors, show a downward trend, securities firms are considering stopping transactions of high-leverage products that track overseas stocks. This is due to the fact that when the stock price of the underlying asset falls, the loss rate of high-leverage products can increase uncontrollably, leading them to halt transactions of high-risk products for investor protection.
In fact, on Jan. 9, the stock price of IonQ (IONQ), which was identified as a beneficiary of quantum computers, fell, leading to the delisting of a leveraged exchange-traded product (ETP) that tracked it three times overnight. Jensen Huang, CEO of NVIDIA, stated that "Commercialization of quantum computers could take more than 20 years," causing IonQ's stock price to plunge by 40%. Investors in the 'LevShares IonQ 3X ETP' listed on the London Stock Exchange lost their entire principal.
On the 27th, Mirae Asset Securities will prohibit the purchase of overseas high-leverage ETPs (Exchange Traded Products) that track the rate of change of underlying assets by more than three times from the 3rd of next month. A Mirae Asset Securities official noted, "The market volatility is too great, and we are halting transactions for investor protection."
Mirae Asset Securities will halt purchases of four times (5 products) and five times (30 products) leveraged products among the three times (295 products), four times, and five times leverage products. This is the first time that Mirae Asset Securities has put a brake on the purchase of overseas high-leverage ETPs.
Samsung Securities is also expected to stop brokerage of high-leverage products. A Samsung Securities official said, "We are considering halting new purchases of highly volatile ETPs" and noted, "We are closely monitoring stocks such as ETFs that have large daily fluctuations." Samsung Securities also suspended brokerage of five times leverage products listed in the UK in 2021 for investor protection.
Kiwoom Securities also stated that it is currently discussing restrictions on trading of leveraged products. Kiwoom Securities brokers three times (133 products) and four times (1 product) ETPs.
The reason securities firms are struggling with the brokerage of overseas high-leverage products is that U.S. tech stocks favored by foreign retail investors are significantly declining.
A month ago, Tesla's stock price exceeded $420 but fell to $290 on the 26th. On that day, Tesla's market capitalization dipped below $1 trillion. The same goes for NVIDIA and Palantir. After the low-cost AI model from the Chinese company DeepSeek was released last month, NVIDIA's price plummeted, and it lost $600 billion in market capitalization in just one day. Although it partially recovered some of its stock price afterward, it is still 13% lower compared to early this year. Palantir also dropped 27% from its peak this year.
The decline rate of leveraged products that track these stocks as underlying assets is much larger. Compared to its high this year, the stock price drop for 'LevShares Tesla 3X ETP' is about 70%, 'LevShares NVIDIA 3X ETP' about 56%, and 'LevShares Palantir 3X ETP' about 70%.
Leveraged products are high-revenue, high-risk products that use 'leverage' strategies, such as derivatives, to pursue high returns. While one can expect several times the revenue when the tracked stock or index rises, loss can multiply in a downward market.
This year, domestic investors concentrated on buying high-leverage products tracking individual U.S. stocks. In particular, investments were focused on tech stocks such as ▲Tesla, ▲NVIDIA, and ▲Palantir, which had high returns last year.
According to the securities industry, as of the 7th of this month, foreign retail investors invested a total of 380 billion won in leveraged shares products that track the daily revenue of tech stocks by three times. These include ▲LevShares Tesla 3X ETP (330 billion won), ▲LevShares NVIDIA 3X ETP (30 billion won), and ▲LevShares Palantir 3X ETP (19 billion won).
Meanwhile, the Financial Supervisory Service requested data from domestic securities firms regarding the investment status of domestic individuals in overseas leverage ETPs from 2019 to 2024 on the 26th.