Seoul: South Korea's financial regulator on Thursday unveiled a set of measures on leveraged exchange-traded funds (ETFs) to help ensure market stability and protect investors, as the country is experiencing extreme market volatility.
According to Yonhap News Agency, the Financial Services Commission (FSC) announced that the listing of new ETFs tracking Samsung Electronics and SK hynix will be suspended temporarily. Additionally, the minimum deposit requirement for investors in a single-stock leveraged ETF will be increased to 30 million won (US$20,000) in cash only, up from the current 10 million won in mixed stocks and cash.
Investors will also be permitted to trade a batch of 20 shares in the leveraged ETFs, a move the regulator believes will help reduce turnover. These leveraged ETFs, which debuted in May, double the daily movements of the underlying stocks and have contributed to significant market fluctuations. The popularity of these ETFs has surged among retail investors, particularly those tracking Samsung and SK hynix, as both companies have experienced a bull run driven by the artificial intelligence (AI) sector's growth.
The FSC's decision follows a call from President Lee Jae Myung for regulatory authorities to implement measures to stabilize the market. The revised minimum deposit requirement will take effect on August 5, with the cash-only deposit requirement set to begin on August 19. Meanwhile, the adjustment to the minimum trading unit is slated for implementation in November.
The FSC also aims to strengthen penalties to enhance accountability for brokerage firms and asset managers in managing tracking errors. Investor protection measures will be bolstered with improved risk disclosures and mandatory pre-investment education. The FSC projects that the stricter deposit requirements will significantly reduce the combined market capitalization of single-stock leveraged products, currently valued at approximately 12 trillion won, to about one-third of its present size.