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

Odaily Odaily Planet Daily News The South Korean Financial Services Commission (FSC) has announced that it will advance the implementation of enhanced base margin requirements for single-stock leveraged ETFs and ETNs to the end of July. Starting July 31, individual investors wishing to newly purchase or increase holdings in single-stock leveraged ETFs/ETNs must hold at least 30 million KRW in cash as a base margin in their accounts. This measure applies to both domestically and overseas listed single-stock leveraged ETFs and ETNs. Financial authorities stated that the decision to strengthen investor protection measures was made earlier than planned due to the rapid growth in market capitalization and trading volume of these products since their launch on May 27, coupled with 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, while trading volume also rose from 10.4 trillion KRW to 13 trillion KRW. Under the previous rules, individual investors purchasing single-stock leveraged products were required to meet a base margin of 10 million KRW, and assets such as stocks, ETFs, and bonds could be calculated towards the margin requirement. After the new regulations take effect, the base margin standard will be raised to 30 million KRW, and only cash assets will be recognized, with securities and similar assets no longer eligible for calculation.

Furthermore, proceeds from securities sales can only be counted towards the base margin after they have been settled and actually credited to the account on T+2 day. Loan amounts secured by using sale proceeds as collateral also do not count towards the margin requirement. The FSC stated that this aims to restrict high-frequency circular trading behavior where investors sell securities one day and immediately repurchase leveraged products the next.

For existing investors who wish to increase their holdings, the 30 million KRW cash margin standard also applies, but selling operations are not subject to margin restrictions.

The South Korean financial authorities had previously suspended new listings of single-stock leveraged ETFs/ETNs starting July 16 and restricted related advertising. They also plan to strengthen product premium rate management mechanisms, shorten the designation process for investment warning products, and push forward adjustments to trading units.

The FSC stated it will continue to monitor market trends for these products and will consider implementing additional supplementary measures if the market overheating is not alleviated. (Chosun)