Amid Volatility from Samsung and SK Hynix Leveraged ETFs, Securities Industry to Raise Minimum Deposits
Emergency Meeting of Korea Financial Investment Association and CEOs of Ten Securities Firms
Discussion on Voluntary Investor Protection Measures
Amid growing concerns over investor losses and market volatility related to single-stock leveraged Exchange Traded Funds (ETFs) for Samsung Electronics and SK hynix, the securities industry has decided to implement voluntary investor protection measures, such as raising the minimum required deposit.
Hwang Sungyeop, Chairman of the Korea Financial Investment Association, is speaking at an emergency meeting of securities firms held at the Korea Financial Investment Association in Yeouido, Seoul, on the 14th. Photo by Yonhap News.
View original imageThe Korea Financial Investment Association and CEOs of ten leading securities firms held an emergency meeting on July 14 at the Financial Investment Center in Yeouido, Yeongdeungpo-gu, Seoul, to discuss the current situation regarding single-stock leveraged ETFs and measures to protect investors. Participants acknowledged that while single-stock leveraged ETFs offer investors expanded choices and greater product diversity, the “leverage effect” can amplify losses even with small investments, causing rapid losses and even losses in sideways markets.
To prevent excessive leveraged investment, the group agreed to consider raising the current minimum required deposit, which is set at 10 million won. They also discussed ways to reduce the impact of daily rebalancing trades on underlying asset markets. According to the Korea Capital Market Institute, since the launch of single-stock leveraged ETFs, the estimated daily trading volume required for rebalancing is between 700 billion and 2.1 trillion won.
Participants agreed on the need to distribute trading times to avoid concentration at the market close due to rebalancing trades and to strengthen the market stabilization role of liquidity providers (LPs). In addition, as investment demand has grown more rapidly than anticipated since the product's launch, the industry will enhance customized risk warnings and guidance tailored to factors such as investor age and asset holdings, and reinforce education so that investors can fully understand the product structure and risks before investing.
However, specific actions such as the new minimum required deposit were not determined at the meeting. Since customer profiles differ among securities firms, each firm will review and discuss the appropriate level individually going forward.
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The Korea Financial Investment Association and the securities industry plan to continuously monitor trading trends and investor behavior in single-stock leveraged ETFs and to cooperate with any additional measures the government may implement. Hwang Sungyeop, Chairman of the Korea Financial Investment Association, stated, “Single-stock leveraged products can serve as a tool to broaden investor choice, but this also calls for a greater role for the industry in protecting investors.”
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