Global banks are raising financing costs on semiconductor swap trades to as high as 15%, a move that threatens to unwind leveraged positions in South Korea's two largest stocks.
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Banks curb hedge fund leverage on chip stocks, swap costs near 15%
Major Wall Street banks including Citigroup, JPMorgan Chase and Goldman Sachs have raised swap financing costs for hedge funds betting on SK Hynix and Samsung Electronics to as high as 15%, from about 5% in early May, according to people familiar with the matter.
The restrictions extend beyond pricing. Morgan Stanley has stopped accepting new swap transactions for the two South Korean stocks, while some second-tier banks halted new orders over the past two weeks, the people said. Bank of America, BNP Paribas and UBS Group have also followed with adjustments. The measures also apply to Taiwan Semiconductor Manufacturing Co.
Swap financing quotes for SK Hynix and Samsung have been raised to between the secured overnight financing rate plus 300 basis points and 11%, the people said. With SOFR at about 3.6%, the new rates imply an effective cost of nearly 15%. In early May, those rates stood at SOFR plus 100 to 200 basis points — roughly 4.6% to 5.6%.
The tightening reflects over-concentration in these stocks within the KOSPI index, according to Goldman Sachs analysts, who estimate single-holding limits have triggered about $69 billion in passive selling since late October. Samsung and SK Hynix together account for about 50% of the KOSPI's total market capitalization, far exceeding the single-stock caps applicable to most funds.
The Leverage Squeeze
The move comes as South Korea's stock market experiences its largest foreign capital outflow on record. A UBS report shows net foreign outflows reached about $70 billion in the first half of 2026, far exceeding the roughly $20 billion during the 2020 pandemic. During the slump in Korean stocks in early June, cumulative forced liquidations by individual investors totaled approximately 300 billion won.
Another factor amplifying the risk is the rapid expansion of leveraged ETFs. In late May, the South Korean market launched 16 double-leveraged ETFs linked to Samsung Electronics and SK Hynix, with total assets of about $2.8 billion on their first day of listing. Goldman Sachs has noted that the daily rebalancing mechanism of such products can amplify market volatility.
Despite the tightening, semiconductor stocks continued to rise on June 12. SK Hynix gained 4.33% to 2.192 million won, while Samsung rose 8.03% to 323,000 won. In Hong Kong, the XL2CSOPHYNIX leveraged product climbed 6.51%, and the XL2CSOPSMSN product surged 14.59%. The KOSPI index's gain narrowed from 8.6% to 4.6% after the news emerged.
The banks' actions represent a preventive cooling measure targeting overly concentrated position structures rather than a bearish view on semiconductor fundamentals, the people said. Global AI investment and South Korean semiconductor exports remain strong. But with financing costs now approaching 15%, hedge funds holding leveraged long positions face a choice: pay up or unwind.
This article is for informational purposes only and does not constitute investment advice.
[1] Banks Reportedly Curb Hedge Fund Leverage on SK Hynix and Samsung; XL2CSOPHYNIX (07709.HK) Gains Narrow to 6.5%[2] Citigroup shares outperform down market after Trump endorsement[3] SK Hynix, Samsung, and Taiwan Semiconductor simultaneously hit with restrictions! Wall Street banks curb hedge funds’ leveraged bets on Asian chip stocks - Moomoo[4] Wall Street Banks Said to Tighten Leverage, South Korean Stocks Plunge Intraday. Samsung, SK Hynix Gains Pull Back Significantly - TradingKey[5] After a sharp rally in chip stocks, major Wall Street banks have imposed limits on hedge funds’ leveraged long positions in SK Hynix, Samsung, and Taiwan Semiconductor. - Moomoo
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