Capital markets in Taiwan and South Korea have been highly active over the past two years. Taiwan’s benchmark stock index rose from about 29,000 points at the end of 2025 and briefly surpassed 46,000 in mid-2026, accompanied by a marked increase in trading volume. South Korean stocks also posted strong gains, with the KOSPI repeatedly reaching new highs on the strength of heavyweight semiconductor shares. However, the South Korean market also experienced substantial volatility during its 2026 rally, underscoring that rising share prices, active trading, and market risk do not always move in tandem.
Hsien-Ming Lien, President of the Chung-Hua Institution for Economic Research (CIER), said South Korean stocks experienced several episodes of severe volatility in 2026. Some market discussions have focused on sharp movements in individual stocks and the rapid growth of leveraged investment products. However, South Korea widened the daily price limit for individual stocks to 30% as early as 2015. Therefore, the increase in volatility cannot be attributed solely to the price limit. A more important issue is how trading rules affect the accumulation of leverage in the market.
Divergent Price Limits and Margin Rules: How Leverage Amplifies Market Sell-Offs
Lien said both Taiwan and South Korea have margin trading systems and maintenance ratio requirements. When the collateral maintenance ratio falls below the required threshold, investors must provide additional collateral or risk having their positions liquidated. However, South Korea allows individual stock volatility to rise or fall by as much as 30% per day, compared with Taiwan’s 10% limit. During a sharp market decline, maintenance ratios for margin positions in South Korea may therefore fall more rapidly, increasing pressure from margin calls and forced liquidations.
This institutional difference does not mean Taiwan’s stock market is free from volatility risk. Rather, it shows that price limits, margin trading, and investors’ capacity to absorb risk are closely interconnected. When market leverage is highly concentrated, falling prices can trigger a chain reaction of margin calls, position reductions, and forced liquidations, further amplifying the initial volatility.
South Korea’s Single-Stock Leveraged ETFs: Rapid Risk Exposure Following Market Reversal
Lien indicated that differences in retail investment products warrant even greater attention. Taiwan’s leveraged and inverse exchange-traded funds primarily track market indexes. It has not authorized leveraged ETFs that track the shares of individual listed companies. South Korea, by contrast, began allowing two-times leveraged and inverse ETFs linked to individual stocks, such as Samsung Electronics and SK hynix, in late May 2026. After these products entered the market, volatility and investor risk quickly became key regulatory concerns.
Leveraged products amplify daily price movements. When the market rises, these products may increase their exposure to maintain the target leverage ratio. When the market reverses, they may generate pressure to rebalance in the opposite direction. If substantial margin trading also exists, falling prices, margin calls, and forced liquidations can reinforce one another.
After the share prices of Samsung Electronics and SK hynix fell sharply in July 2026, the market saw widespread margin calls and forced liquidations. Official South Korean statistics showed that over 1.2 million leveraged retail investor accounts had breached margin call thresholds by mid-July. Approximately 320,000 to 360,000 accounts were forcibly liquidated, with total liquidations amounting to hundreds of billions of South Korean won.
South Korean regulators subsequently raised the minimum margin requirement for the relevant leveraged products to KRW 30 million. The move reflects renewed efforts to balance financial product innovation with investor protection.
Beyond Product Diversity: Capital Market Internationalization Requires Enhanced Risk Management
Lien said the experiences of Taiwan and South Korea show that capital market development is not solely about increasing trading volume, diversifying financial products, or improving market efficiency. It also involves the pace at which leverage builds up and the market’s ability to withstand periods of stress. Financial product innovation is not inherently risky. However, when leveraged products, margin trading, and market concentration all rise simultaneously, a market reversal can amplify price volatility and investor losses.
As Taiwan promotes the internationalization of its capital market and greater financial product diversity, it should carefully assess the underlying assets, leverage multiples for leveraged products, investor eligibility requirements, margin requirements, and market concentration risks. It should also continue to strengthen stress testing and risk monitoring.
The key policy lesson from South Korea’s recent stock market experience is not that financial innovation should be restricted. Rather, the pace of product innovation must remain aligned with risk-management capabilities. Only then can Taiwan enhance the competitiveness of its capital market while safeguarding investors and maintaining financial stability.
Source: Hsien-Ming Lien (September 18, 2026). A Prudent Approach to Leveraged Trading. Economic Daily News. https://udn.com/news/story/7238/9766691