SK Hynix Drops 7.68%, but Leveraged ETF Closes Up 49.7%

SK Hynix Inc. fell 7.68% on South Korea’s benchmark stock market on June 8, but a single-stock leveraged exchange-traded fund tied to the chipmaker surged nearly 50% at the close.

According to the Korea Exchange, Korea Investment Management’s ACE SK Hynix Single Stock Leverage ETF ended at 30,000 won, up 49.7% from the previous session. That came despite a drop in SK Hynix, the fund’s underlying asset. Other SK Hynix single-stock leveraged products managed by rival firms fell 15% to 16% on the day.

The ETF had been trading lower during the session before jumping sharply late in the day. Market participants said the price was severely distorted as buy orders flooded in near the close while quotes from the liquidity provider, or LP, were lacking. About 47,000 shares changed hands during the closing call auction. Korea Investment Management said LP quotes widened just before the close, when there is no obligation to submit quotes, and investors’ market buy orders were executed during that period, sending the price sharply higher. The firm added that it will review its LP quoting system and take care to prevent further problems.

When the market reopens in the next session, the ETF price is poised to converge back toward its original value in the 16,000-won range. That means investors who bought the ETF at the sharply inflated late-session price could face losses of more than 40% as soon as the next day’s open.

Yang Ji-yun, Hankyung reporter yang@hankyung.com