Supplementary Measures Introduced for Samsung Electronics and SK hynix Leveraged ETFs... Stricter '30 Million Won Cash Deposit' Requirement (Update)

Announcement of Supplementary Measures for Single-Stock Leveraged Products
Temporary Suspension of New Listings Until Market Stabilizes
Trading Only Allowed in Lots of 20 Shares Starting in November

The government has temporarily suspended the listing of new single-stock leveraged exchange-traded funds (ETFs) related to Samsung Electronics and SK hynix, which have been identified as key drivers of volatility in the Korean stock market, until the market stabilizes. Starting in early August, the minimum required cash deposit will be raised to 30 million won, and from November, these products can only be bought and sold in units of 20 shares.

Based on a market status review meeting led by Deputy Prime Minister for Economic Affairs Koo Yun-cheol on July 16, the Financial Services Commission and related agencies prepared and announced supplementary measures for single-stock leveraged products (ETFs and ETNs).

This move comes as leveraged ETF products have been criticized for amplifying market volatility during recent stock market swings, effectively turning the local stock market into a "betting board." The market capitalization of the 16 types of single-stock leveraged ETFs rose from 4.4 trillion won on May 27 to over 15 trillion won in just one month. Even after a recent correction, their market capitalization still stood at 11.9 trillion won as of the previous day. In particular, the "short gamma structure"—which leads to more selling during sharp declines and more buying during price increases—has intensified volatility. Since the rollout of leveraged products, the KOSPI sidecar has been triggered 19 times, and circuit breakers have been activated 5 times.

Temporary Suspension of New Listings... "Cash Deposit Must Be At Least 30 Million Won"

These supplementary measures focus on balancing investor protection, market stability, and enhancement of market efficiency. First, the government has immediately and temporarily halted the listing of all new single-stock products, including inverse and covered call products, until market stabilization. Advertising and promotional events for already listed and traded single-stock leveraged products by securities firms and asset managers are also immediately prohibited.

To stabilize demand, the basic deposit for single-stock leveraged products—which currently stands at at least 10 million won—will be strengthened. Previously, when calculating the basic deposit, 70% of the market value of substitute securities in the account, such as stocks, ETFs (excluding leveraged ETFs), and bonds, was included along with cash. For example, if an investor held stocks worth 15 million won, their basic deposit was recognized as 10.5 million won. Typically, these requirements were also relaxed three months after trading began.

However, starting in early August, the minimum cash deposit will be raised to 30 million won, and holdings of substitute securities will not be counted towards the basic deposit. A representative from the Financial Services Commission stated, "Regardless of previous investments, investors must maintain a cash deposit of at least 30 million won whenever they make a new or additional investment in single-stock leveraged products," and added, "Even after a certain period has elapsed since trading, the deposit requirement will not be relaxed."

From November, the trading unit for single-stock leveraged products will also be changed; they can no longer be bought or sold in single shares, but only in lots of 20. This is expected to reduce trading volume compared to current levels. According to current rules, single-stock leveraged products are issued and traded at a price similar to that of conventional leveraged products, making it possible to invest at a lower price than the underlying shares.

An official from the Financial Services Commission also said, "Taking into account concerns about spillover effects into foreign products, we will strengthen these requirements not only for domestically listed single-stock leveraged products but also for those seeking to invest in single-stock leveraged products listed abroad."

Stricter Management of Premium/Discount Rate... Pre-Trade Education Extended to Three Hours

Investor protection systems will also be improved. Measures will be taken to prevent investors from buying single-stock leveraged products at prices higher and selling at prices lower than their actual net asset value, through stricter management of the premium/discount rate. Specifically, starting in August, the obligation for securities firms (liquidity providers) to control the premium/discount rate for domestic products will be tightened from the current 3% to 2%. If a securities firm intentionally or through gross negligence violates this rule, Korea Exchange will have grounds to restrict the firm's ability to provide liquidity for new products. For asset managers, if they violate the appropriate premium/discount rate for ETFs, a ban on listing new ETFs by that asset manager will be considered.

In addition, if an ETF repeatedly exceeds twice the allowable limit for the premium/discount rate management obligation, it can be designated as an item requiring investment caution through a two-stage process (detection/notice of designation, then designation). The shortened procedure is scheduled for implementation in August.

Pre-investment education requirements will also be strengthened. Currently, to newly invest in single-stock leveraged products (both domestically and internationally listed), investors must complete one hour of basic training on general leveraged products and one hour of advanced training on single-stock leveraged products, for a total of two hours. Reflecting recent market events and cases of losses, the government will add an additional one-hour, case-based advanced training module, increasing total training time to three hours. In addition, if an investor does not reach a certain score (60 points) on the intermediate test, they will be required to retake the relevant chapter.

Furthermore, the system will be improved so that, through securities firms’ mobile trading systems (MTS), investors holding single-stock leveraged products will be advised of their loss ratio if a certain loss threshold is reached, and informed of potential risks associated with medium- and long-term holding periods.

A government official stated, "We will continue to closely monitor the trends and impact of single-stock leveraged products in the market, and will consider further measures if necessary."

This content was produced with the assistance of AI translation services.