Korea to Implement New Rules for Single-Stock Leverage Products: Closing Deviation Rate Management Range Tightened to 2%

Odaily News: The Financial Services Commission of South Korea has announced that it will further raise the investor threshold for single-stock leveraged ETFs and ETNs, with the new rules set to take effect on August 19. In addition to the existing 30 million KRW base margin and 3 hours of prior education, first-time individual investors in leveraged products on single domestic and foreign stocks will also be required to complete simulated trading.

In addition, the management standards for deviation rates of ETFs and ETNs will also be comprehensively tightened. The closing deviation rate management range for domestic ETFs and ETNs will be tightened from 3% to 2%, while for overseas products it will be tightened from 6% to 5%. For deviation rates calculated as negative values, they will be computed based on their absolute values. Under the new rules, if the deviation rate exceeds twice the management range, a screening and designation notice will be triggered; if the deviation rate again exceeds twice the range within 10 trading days from the date of the designation notice, or exceeds the standard for two consecutive trading days, the product may be designated as an investment caution item, after which a call auction will be conducted for 3 trading days.

The Financial Services Commission explained that the tightened regulation is due to the negative compounding effect of single-stock leverage products, where investors may incur losses even if the underlying asset remains flat, and it hopes investors will fully understand the product structure and risks before making actual investments. (Yonhap)