South Korean retail investors may have cooled on single-stock leveraged ETFs at home after regulators tightened trading rules, but their appetite for leveraged bets has not gone away. Much of that demand has instead migrated to US-listed products, where Korean investors now hold unusually large stakes in several leveraged ETFs — an outsized presence in corners of the US market that may also have contributed to the trading volumes behind a recent disruption in daytime access to popular products.

The shift is the latest chapter in the broader rise of Korea's retail investing crowd, often called "ants" for their swarming, coordinated trading style, which grew rapidly during the pandemic-era boom in do-it-yourself investing.

How large is Korea's footprint?

The clearest example is the Direxion Daily Semiconductor Bull 3X Shares, or SOXL, which aims to deliver three times the daily performance of the Philadelphia Semiconductor Index. Korean investors held $5.24 billion of SOXL as of the end of last month, according to the Korea Securities Depository — equivalent to 27 percent of the fund's $19.3 billion market capitalization.

Their net purchases of SOXL this year total $2.43 billion, 1.5 times their investment in the second-ranked Invesco Nasdaq 100 ETF.

Korean holdings extend well beyond semiconductors. At the end of last month, Koreans held 12.6 percent of ProShares UltraPro QQQ and 20.9 percent of ProShares Ultra QQQ. Their stakes in Direxion Daily TSLA Bull 2X Shares and Direxion Daily MSCI South Korea Bull 3X Shares (KORU) were even higher, at 38.8 percent and 37.6 percent, respectively. Korean retail investors are estimated to have put about $10 billion into leveraged ETFs during the first half of this year.

Leveraged ETFs use derivatives and borrowing to multiply the daily return of an underlying index or stock. Gains are magnified when the market moves in an investor's favor, but losses are amplified just the same. And because the targets reset daily, returns over longer periods can diverge sharply from the stated multiple — a structural feature that makes the products better suited to short-term trading than buy-and-hold positions, yet one that has not deterred the Korean buyers.

Why has demand shifted overseas?

Korean authorities recently imposed tighter requirements on domestic single-stock leveraged ETFs, including minimum-deposit and order-volume rules. The restrictions appear to have dampened local trading without eliminating demand for high-risk, high-return products.

US-listed ETFs give Korean investors a far wider range of leveraged exposure, covering individual stocks, technology indexes, semiconductors, and even the Korean market itself.

The aggressive buying has drawn the attention of global asset managers. Owen Lamont, senior vice president and head of research at US asset manager Acadian, compared the behavior to the Netflix series "Squid Game" in a report last year titled "The Squid Game Stock Market." Lamont noted that Koreans frequently own more than 20 percent of US-listed leveraged ETFs and as much as 40 percent of some products. Before single-stock leveraged ETFs became available in Korea, he argued, risk-seeking Korean investors were already channeling that demand toward the US market. He described the rise of retail-driven speculation in the US as the market's "Koreafication."

Korean investors' $112 billion in US stock holdings amounts to only about 0.2 percent of total US market capitalization. But "in some small corners of the market, Korean retail investors are major players," Lamont wrote.

How did this lead to 'blind' trading?

That concentrated demand may also have played a role in a recent disruption to US overnight trading. Blue Ocean ATS suspended trading in 18 securities, including SOXL and KORU, beginning with the Sept. 1 session. Most of the affected securities were leveraged or inverse products.

The operator said the action was taken to comply with the US Securities and Exchange Commission's Fair Access Rule. Under the rule, an alternative trading system becomes subject to additional requirements — including establishing objective standards governing access to the platform — when it accounts for at least 5 percent of trading volume in a security during four of the preceding six months.

"Blue Ocean ATS hits the Fair Access threshold for many stocks over the course of a month," a Blue Ocean Technologies spokesperson said. "While this often involves low-volume securities, this month we have seen higher volume in leveraged products."

Blue Ocean did not identify Korean trading as the cause. But the scale of Korean ownership and trading in products such as SOXL and KORU suggests it may have helped push volumes toward the regulatory threshold.

The suspension matters because Korean brokerages rely heavily on Blue Ocean to offer US stock trading during Korean daytime hours, which overlaps with the US overnight session — the only window in which Korean investors can trade US-listed securities without staying up through local nighttime hours. Samsung Securities, Toss Securities and other brokerages have continued accepting orders for the affected securities through alternative trading systems such as MOON and Bruce. Those venues, however, do not provide real-time quotes through Korean brokerage platforms. Investors can still submit limit orders but cannot see current bid and ask prices — a situation market participants describe as "blind" trading.

"Although quotes are unavailable, investors can still execute trades based on the last available price, with returns displayed on brokerage platforms," an official at a local brokerage said. "Trading demand appears to remain strong despite the lack of market data."

Blue Ocean reviews trading volume throughout each month to determine when suspended securities can return, but has not set a date for resuming trading. Korean brokerages are now exploring additional trading venues and backup systems for order execution and market data, particularly in case other platforms impose similar restrictions.

The episode illustrates how South Korean retail investors, while accounting for only a fraction of the US market overall, have become influential enough to shape trading conditions in some of its most speculative corners — and it raises the question of whether other niche, retail-favored products could trigger similar access restrictions as concentrated flows grow.