The handling of the recent sell-off in Asian tech and semiconductor stocks suggests that trading firms and platform providers are taking a more sophisticated approach to managing extreme volatility.
For example, when meme stock mania saw retail investors on social media join forces to buy heavily shorted stocks in 2021, causing massive price spikes and billions in losses for institutional hedge funds, some brokerages temporarily restricted purchases of volatile stocks.
Lawmakers subsequently questioned the ethics and mechanics of payment for order flow (where brokers route retail trades to market makers) and whether short sellers should face stricter disclosure rules.
In October 2023, the SEC formally adopted Rule 13f-2 and Form SHO to increase transparency around short-selling activities. Of course, these changes were subject to legal challenge, with the result that the initial reporting dates have been delayed until 2028.
Risk Controls Put to the Test
The response from trading platforms this time has been more measured. There was no widespread suspension of trading in Asian technology shares, with brokers, exchanges and institutional trading venues instead activating automated temporary trading curbs, reining in leveraged bullish bets and swap financing for key semiconductor players like SK Hynix and Samsung Electronics, and cutting risk exposure in overheated technology sub-sectors.
Read more: Investors No Longer Wait for a Crash. What Does That Mean for Retail Brokers?
Retail and institutional brokers increased initial and maintenance margin requirements on the most volatile semiconductor and AI-related stocks, while brokers encouraged clients to reduce borrowing before forced liquidations became necessary.
According to a report in the Financial Times, regulators are examining UK prime brokers' exposure to leveraged Asian equity positions, prompting banks to review hedge fund leverage and increase collateral requirements.
Institutional investors relied more heavily on algorithmic execution strategies, while liquidity providers became more defensive. Market makers responded by quoting smaller sizes, widening bid-offer spreads and reducing inventories of volatile semiconductor stocks.
Given that South Korea's benchmark KOSPI index plummeted by over 10% in a single session and Samsung Electronics and SK Hynix dropped by up to 15% in a single day's trading, it is hardly surprising that Korean regulators are looking at imposing tighter investment and leverage limits and higher transaction costs on leveraged single-stock ETFs.
JUST IN 🚨: South Korean Stocks plunge nearly 11%, their third biggest loss in history 📉 📉 pic.twitter.com/QIZWlRMSjO
— Barchart (@Barchart) July 28, 2026
The major brokers have been proactive in warning clients about the risks of elevated volatility, higher margin requirements
Margin Requirements
A margin requirement is defined as the minimum equity sum that investors must keep in their margin account preceding a trading transaction. Margin requirements may be referred to as maintenance margin, minimum maintenance, or maintenance requirement. This is a requirement for broker trading in any asset class.In terms of equities, the New York Stock Exchange (NYSE) and Financial Industry Regulatory Authority (FINRA) have a fixed margin requirement of 25% of the sum value of the securities presen
A margin requirement is defined as the minimum equity sum that investors must keep in their margin account preceding a trading transaction. Margin requirements may be referred to as maintenance margin, minimum maintenance, or maintenance requirement. This is a requirement for broker trading in any asset class.In terms of equities, the New York Stock Exchange (NYSE) and Financial Industry Regulatory Authority (FINRA) have a fixed margin requirement of 25% of the sum value of the securities presen
Read this Term, concentration risk in AI-related shares and the possibility of rapid price gaps.
The main beneficiary has been the US options market, where investors have tapped into listed options to both hedge against and speculate on the sell-off, resulting in record levels of activity. Cboe Global Markets announced record options volumes, bolstered by AI-driven market fluctuations and increased retail involvement. Its income from options trading was up by 30% compared to the previous year, prompting the company to raise its revenue forecast.
Investors have also turned their attention to semiconductor and Asia-focused ETFs to reduce their exposure or hedge positions, accelerating a shift away from AI-centric portfolios in favour of financials, industrials and energy sectors.
Meanwhile, electronic market makers
Market Makers
Market makers or called dealing desk brokers represent a type of broker that internalize flows and are taking the opposite side of a transaction submitted by their clients. The market making broker is only quoting a feed of prices to its clients. These feeds may or may not be the exact same as the prices quoted on the interbank market.Any order a client enters is processed internally and never goes out to the market, except in rare cases where a market making brokerage identifies a client as a v
Market makers or called dealing desk brokers represent a type of broker that internalize flows and are taking the opposite side of a transaction submitted by their clients. The market making broker is only quoting a feed of prices to its clients. These feeds may or may not be the exact same as the prices quoted on the interbank market.Any order a client enters is processed internally and never goes out to the market, except in rare cases where a market making brokerage identifies a client as a v
Read this Term have absorbed relatively large order flows in options and ETFs.
Who Won and Who Lost?
Citadel Securities has gone even further, acquiring a large technology-focused portfolio from hedge fund Situational Awareness in a transaction that was seen as an attempt to prevent further forced selling.
Leveraged bets on high-momentum AI names generated massive returns for Situational Awareness in the first half of the year. However, the fund is believed to have lost around two-thirds of its value in July alone.
Funds that had been betting against AI-related stocks or had reduced their exposure after the rally earlier this year have done well from this tech turmoil, particularly global equity long/short hedge funds that were short expensive semiconductor stocks, macro funds that anticipated a correction in AI spending expectations, and quantitative funds whose momentum models flipped from long to short as the sell-off accelerated.
There will definitely be more than a touch of 'I told you so' coming from those hedge funds that had claimed AI infrastructure spending had become disconnected from earnings expectations.
Fund managers who were underweight in AI stocks or who favoured dividend-paying companies have outperformed their benchmarks during the correction.
The man who wrote the essay that started the entire AI boom just got DESTROYED by it.
Goldman Sachs, JPMorgan, and Bank of America teamed up to liquidate their own client overnight.
Leopold Aschenbrenner left OpenAI in 2024 and published an essay called "Situational Awareness"… pic.twitter.com/TaqbBjWzwe
— Ricardo (@Ric_RTP) August 1, 2026
Strategists at JP Morgan have suggested that technology may no longer lead global equity markets in the second half of 2026, favouring broader cyclical sectors instead. Their view is that the software, business services and media sectors will continue to perform, irrespective of whether they show resilience in light of the AI 'cannibalisation' threat, while accepting that there could be tactical bounces, given the significant derating already seen.
Long-term investors are buying companies at significantly lower valuations, and fund managers have already indicated interest in quality software companies, profitable semiconductor equipment firms and large technology franchises whose earnings remain strong despite lower share prices. Overseas investors bought $5 billion of South Korean shares last Friday, more than twice the previous record for a single day's trading.
Ranmore Funds' Chief Investment Officer, Andrew Lapping, is just one of many who feel that falling valuations are creating opportunities in selected technology names.
Those who found themselves on the wrong side of the ledger include retail investors using leveraged ETFs in South Korea, momentum investors heavily concentrated in AI stocks and passive funds tracking semiconductor-heavy indices such as South Korea's KOSPI and Taiwan's technology sector.
Margin calls on leveraged retail positions amplified the decline once the sell-off gathered pace.
The scale of the losses has been particularly severe in South Korea, where retail investors had piled into AI-related stocks after a spectacular rally earlier this year. It is estimated that retail investor losses could be as high as $28 billion.
The handling of the recent sell-off in Asian tech and semiconductor stocks suggests that trading firms and platform providers are taking a more sophisticated approach to managing extreme volatility.
For example, when meme stock mania saw retail investors on social media join forces to buy heavily shorted stocks in 2021, causing massive price spikes and billions in losses for institutional hedge funds, some brokerages temporarily restricted purchases of volatile stocks.
Lawmakers subsequently questioned the ethics and mechanics of payment for order flow (where brokers route retail trades to market makers) and whether short sellers should face stricter disclosure rules.
In October 2023, the SEC formally adopted Rule 13f-2 and Form SHO to increase transparency around short-selling activities. Of course, these changes were subject to legal challenge, with the result that the initial reporting dates have been delayed until 2028.
Risk Controls Put to the Test
The response from trading platforms this time has been more measured. There was no widespread suspension of trading in Asian technology shares, with brokers, exchanges and institutional trading venues instead activating automated temporary trading curbs, reining in leveraged bullish bets and swap financing for key semiconductor players like SK Hynix and Samsung Electronics, and cutting risk exposure in overheated technology sub-sectors.
Read more: Investors No Longer Wait for a Crash. What Does That Mean for Retail Brokers?
Retail and institutional brokers increased initial and maintenance margin requirements on the most volatile semiconductor and AI-related stocks, while brokers encouraged clients to reduce borrowing before forced liquidations became necessary.
According to a report in the Financial Times, regulators are examining UK prime brokers' exposure to leveraged Asian equity positions, prompting banks to review hedge fund leverage and increase collateral requirements.
Institutional investors relied more heavily on algorithmic execution strategies, while liquidity providers became more defensive. Market makers responded by quoting smaller sizes, widening bid-offer spreads and reducing inventories of volatile semiconductor stocks.
Given that South Korea's benchmark KOSPI index plummeted by over 10% in a single session and Samsung Electronics and SK Hynix dropped by up to 15% in a single day's trading, it is hardly surprising that Korean regulators are looking at imposing tighter investment and leverage limits and higher transaction costs on leveraged single-stock ETFs.
JUST IN 🚨: South Korean Stocks plunge nearly 11%, their third biggest loss in history 📉 📉 pic.twitter.com/QIZWlRMSjO
— Barchart (@Barchart) July 28, 2026
The major brokers have been proactive in warning clients about the risks of elevated volatility, higher margin requirements
Margin Requirements
A margin requirement is defined as the minimum equity sum that investors must keep in their margin account preceding a trading transaction. Margin requirements may be referred to as maintenance margin, minimum maintenance, or maintenance requirement. This is a requirement for broker trading in any asset class.In terms of equities, the New York Stock Exchange (NYSE) and Financial Industry Regulatory Authority (FINRA) have a fixed margin requirement of 25% of the sum value of the securities presen
A margin requirement is defined as the minimum equity sum that investors must keep in their margin account preceding a trading transaction. Margin requirements may be referred to as maintenance margin, minimum maintenance, or maintenance requirement. This is a requirement for broker trading in any asset class.In terms of equities, the New York Stock Exchange (NYSE) and Financial Industry Regulatory Authority (FINRA) have a fixed margin requirement of 25% of the sum value of the securities presen
Read this Term, concentration risk in AI-related shares and the possibility of rapid price gaps.
The main beneficiary has been the US options market, where investors have tapped into listed options to both hedge against and speculate on the sell-off, resulting in record levels of activity. Cboe Global Markets announced record options volumes, bolstered by AI-driven market fluctuations and increased retail involvement. Its income from options trading was up by 30% compared to the previous year, prompting the company to raise its revenue forecast.
Investors have also turned their attention to semiconductor and Asia-focused ETFs to reduce their exposure or hedge positions, accelerating a shift away from AI-centric portfolios in favour of financials, industrials and energy sectors.
Meanwhile, electronic market makers
Market Makers
Market makers or called dealing desk brokers represent a type of broker that internalize flows and are taking the opposite side of a transaction submitted by their clients. The market making broker is only quoting a feed of prices to its clients. These feeds may or may not be the exact same as the prices quoted on the interbank market.Any order a client enters is processed internally and never goes out to the market, except in rare cases where a market making brokerage identifies a client as a v
Market makers or called dealing desk brokers represent a type of broker that internalize flows and are taking the opposite side of a transaction submitted by their clients. The market making broker is only quoting a feed of prices to its clients. These feeds may or may not be the exact same as the prices quoted on the interbank market.Any order a client enters is processed internally and never goes out to the market, except in rare cases where a market making brokerage identifies a client as a v
Read this Term have absorbed relatively large order flows in options and ETFs.
Who Won and Who Lost?
Citadel Securities has gone even further, acquiring a large technology-focused portfolio from hedge fund Situational Awareness in a transaction that was seen as an attempt to prevent further forced selling.
Leveraged bets on high-momentum AI names generated massive returns for Situational Awareness in the first half of the year. However, the fund is believed to have lost around two-thirds of its value in July alone.
Funds that had been betting against AI-related stocks or had reduced their exposure after the rally earlier this year have done well from this tech turmoil, particularly global equity long/short hedge funds that were short expensive semiconductor stocks, macro funds that anticipated a correction in AI spending expectations, and quantitative funds whose momentum models flipped from long to short as the sell-off accelerated.
There will definitely be more than a touch of 'I told you so' coming from those hedge funds that had claimed AI infrastructure spending had become disconnected from earnings expectations.
Fund managers who were underweight in AI stocks or who favoured dividend-paying companies have outperformed their benchmarks during the correction.
The man who wrote the essay that started the entire AI boom just got DESTROYED by it.
Goldman Sachs, JPMorgan, and Bank of America teamed up to liquidate their own client overnight.
Leopold Aschenbrenner left OpenAI in 2024 and published an essay called "Situational Awareness"… pic.twitter.com/TaqbBjWzwe
— Ricardo (@Ric_RTP) August 1, 2026
Strategists at JP Morgan have suggested that technology may no longer lead global equity markets in the second half of 2026, favouring broader cyclical sectors instead. Their view is that the software, business services and media sectors will continue to perform, irrespective of whether they show resilience in light of the AI 'cannibalisation' threat, while accepting that there could be tactical bounces, given the significant derating already seen.
Long-term investors are buying companies at significantly lower valuations, and fund managers have already indicated interest in quality software companies, profitable semiconductor equipment firms and large technology franchises whose earnings remain strong despite lower share prices. Overseas investors bought $5 billion of South Korean shares last Friday, more than twice the previous record for a single day's trading.
Ranmore Funds' Chief Investment Officer, Andrew Lapping, is just one of many who feel that falling valuations are creating opportunities in selected technology names.
Those who found themselves on the wrong side of the ledger include retail investors using leveraged ETFs in South Korea, momentum investors heavily concentrated in AI stocks and passive funds tracking semiconductor-heavy indices such as South Korea's KOSPI and Taiwan's technology sector.
Margin calls on leveraged retail positions amplified the decline once the sell-off gathered pace.
The scale of the losses has been particularly severe in South Korea, where retail investors had piled into AI-related stocks after a spectacular rally earlier this year. It is estimated that retail investor losses could be as high as $28 billion.
