South Korea's Financial Services Commission announced new regulations for single-stock leveraged exchange-traded funds (ETFs) on July 16, requiring investors to maintain a minimum cash deposit of 30 million won (approximately $22,500). The measures, developed jointly by the Ministry of Finance and Economy, Financial Services Commission, Financial Supervisory Service, and Bank of Korea, aim to address recent market volatility attributed to leveraged ETF trading. The regulations apply to both new investors and existing investors making additional purchases, with phased implementation starting in August.
Financial Authorities Raise Deposit Requirements to 30 Million Won
The Financial Services Commission raised the basic deposit requirement for single-stock leveraged products from 10 million won to 30 million won, scheduled for implementation around August 5. Starting August 19, only cash will count toward the deposit requirement — securities collateral, which previously contributed 70% of its market value to the deposit calculation, will no longer be accepted. Investors must maintain 30 million won in cash to make new investments or additional purchases of single-stock leveraged products, including both domestic and overseas-listed products.
New Listing Suspensions and Trading Unit Expansions Take Effect
Authorities suspended new listings of single-stock products, including inverse and covered call products, until market stabilization. Securities firms and asset managers must immediately cease advertising and promotional events for already-listed single-stock leveraged products. The trading unit for domestic single-stock leveraged products will expand from the current 1 share to 20 shares (provisional) starting in November. Currently, single-stock leveraged products trade at prices similar to typical leveraged products (10,000-20,000 won), enabling low-cost investment.
Deviation Rate Management Standards Tightened to 2%
The Financial Services Commission strengthened deviation rate management obligations for securities firms (liquidity providers) and asset managers from 3% to 2%, applicable to all ETFs and exchange-traded notes (ETNs). Authorities plan to establish grounds for restricting securities firms from liquidity supply operations for new products if they violate deviation rate obligations through intentional or gross negligence. Asset managers violating appropriate deviation rates may face restrictions on new ETF listings. In August, authorities will shorten the investment caution designation process from three stages (screening-designation notice-designation) to two stages (screening and designation notice-designation) for ETFs repeatedly exceeding twice the deviation rate management obligation.
Education Requirements Extended to Three Hours
Mandatory education for investing in domestic and overseas-listed single-stock leveraged products will expand from two hours (one hour basic education plus one hour advanced education) to three hours in August. Authorities will add one hour of case-based advanced education reflecting recent market conditions and loss examples. Education assessment will strengthen with expanded mid-chapter evaluation questions, requiring students scoring below 60 points to re-study the relevant chapter. This measure takes effect in July. In August, securities firms will enhance risk notifications through mobile trading systems, automatically and periodically sending push notifications and alerts to investors holding single-stock leveraged products when losses reach certain levels or when holding periods exceed certain durations.
Phased Implementation Timeline Announced
Related agencies will rapidly pursue detailed measures on a case-by-case basis for prompt market stabilization. Tasks that can proceed through industry self-regulation or without regulatory amendments and system development will begin immediately upon announcement. Tasks requiring regulatory amendments and system development will take effect sequentially from August. Authorities will recommend restricting new transactions in single-stock leveraged products for securities firms failing to complete system development within deadlines to protect investors. A Financial Services Commission official stated that related agencies will continuously monitor market conditions and consider additional supplementary measures through in-depth discussions with experts and investors if the market does not stabilize.
FAQ
What cash deposit do Korean investors need to trade single-stock leveraged ETFs starting in August?
Investors must maintain a minimum cash deposit of 30 million won (approximately $22,500) starting around August 5. From August 19, only cash counts toward this requirement — securities collateral no longer qualifies.
Why did South Korean financial authorities announce these new leveraged ETF regulations on July 16?
The Financial Services Commission, Ministry of Finance and Economy, Financial Supervisory Service, and Bank of Korea jointly developed these measures to address recent market volatility attributed to single-stock leveraged ETF trading.
