South Korea Tightens Threshold for Single-Stock Leveraged ETF Trading: Individual Investors Need 30 Million KRW in Cash from July 31

Odaily Odaily News The Korean Financial Services Commission (FSC) has announced that it will advance the implementation of strengthened base deposit requirements for single-stock leveraged ETFs and ETNs to the end of July. Starting July 31, individual investors wishing to newly purchase or add to existing positions in single-stock leveraged ETFs/ETNs must hold at least 30 million KRW in cash as a base deposit in their accounts. This measure applies to single-stock leveraged ETFs and ETNs listed both domestically and overseas. Financial authorities stated that the decision to accelerate investor protection measures was made due to the rapid growth in market capitalization and trading volume of these products since their launch on May 27, and the increased volatility in the stock prices of major memory chip companies.

Data shows that the total market capitalization of the 16 single-stock leveraged products currently on the market has grown from 4.4 trillion KRW on May 27 to 11.9 trillion KRW on July 15, and their trading volume has also risen from 10.4 trillion KRW to 13 trillion KRW. Under previous regulations, individual investors purchasing single-stock leveraged products were required to meet a base deposit requirement of 10 million KRW, which could be fulfilled using converted assets such as stocks, ETFs, and bonds. After the new regulations take effect, the base deposit standard is raised to 30 million KRW, and only cash assets will be accepted, with securities-type assets no longer eligible for conversion.

Furthermore, proceeds from securities sales will only be counted towards the base deposit after settlement is completed on T+2 and funds are actually credited. Loan amounts secured by using sold funds as collateral will also not be included in the deposit scope. The FSC stated that this aims to curb investors' high-frequency circular trading behavior of selling positions and immediately repurchasing leveraged products on the same day.

For existing investors adding to their positions, the 30 million KRW cash deposit standard also applies, but sell operations are not subject to the deposit limit.

Previously, on July 16, Korean financial authorities had suspended the new listing of single-stock leveraged ETFs/ETNs and restricted related advertising. Going forward, they also plan to strengthen the product premium rate management mechanism, shorten the designation process for investment warning items, and promote adjustments to trading units.

The FSC stated that it will continue to monitor the market trends of related products. If the market overheating phenomenon is not alleviated, it will consider taking further supplementary measures. (Chosun)