South Korea plans to tighten regulations on high-yield equity-linked securities in September, as retail investors shift to complex structured products in search of higher returns.

According to Bloomberg, South Korean regulators plan to step up oversight of structured products including equity-linked securities (ELS) starting next month, mandating brokerages to warn investors when products approach the principal loss trigger line and re-evaluate product design and sales amid significant rising risks. Following a historic sell-off in South Korea’s stock market, retail investors’ risk appetite has not faded; instead, they have turned to more complex structured products in search of higher returns. Equity-linked securities offering annualized coupons of 40% to 50% have lured a large amount of retail capital back, with sales surging to a more than three-year high in July, particularly for notes linked to Samsung Electronics and SK Hynix. After the wave of liquidations and forced closures of single-stock leveraged ETFs that hit South Korean retail investors, their funds have not actually left the market, instead flowing into structured products that appear to offer fixed high yields. However, these high-yield ELS typically feature knock-in clauses, meaning investors could face significant principal losses if the underlying stock price falls below the agreed threshold. The earlier leveraged ETF crisis inflicted heavy losses on young South Korean investors, and the recent boom in high-yield ELS may be replicating a similar risk structure.