Lee Eogwon: "Samsung-Hynix Leverage Products, Individual Investment Limits Possible if Needed"

Minimum Deposit Raised to 30 Million Won, Early Implementation from July 31

Asset Managers Advised to Stagger Rebalancing, LPs Urged to Manage Liquidity

The financial authorities have indicated that they may introduce additional measures, such as new prior investment experience requirements or individual investment limits, for single-stock leveraged exchange-traded funds (ETFs) amid controversy over increasing volatility in the domestic stock market. Despite announcing the early implementation of supplementary measures, including raising the minimum deposit requirement, concerns remain that these actions may not be sufficient to address the structural concentration in the market. The authorities have also requested that asset management companies stagger the timing of rebalancing for single-stock leveraged products to avoid concentrating these activities near market close.

On July 28, Vice Chairman Lee Eogwon of the Financial Services Commission presided over a financial investment industry meeting at the Korea Financial Investment Association in Yeouido, Seoul, attended by representatives of major securities companies, asset management firms, and related entities. The purpose was to discuss further measures for single-stock leveraged products.

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At the meeting, Vice Chairman Lee stressed that the supplementary measures announced on July 16 focus on strengthening investor protection and stabilizing demand for these products. The key points include: ▲ the immediate and temporary suspension of new listings and advertising ▲ increasing the cash minimum deposit to 30 million won ▲ expanding the minimum trading unit to 20 shares ▲ strengthening mandatory requirements for managing price divergence ▲ and expanding mandatory pre-investment education to three hours.

Vice Chairman Lee explained, "The increase in the minimum deposit, which was originally scheduled to take effect in August, will be implemented earlier, on July 31, with the cooperation of the industry's IT development teams for prompt market stabilization." He added, "We are also in discussions to advance the implementation of the minimum trading unit expansion to reflect market prices more realistically." Furthermore, he stated, "We will strengthen the liability of securities firms (liquidity providers) and asset management companies for managing price divergence starting on August 19, to prevent investors from buying all ETF products at prices above market value and selling below market value." He emphasized that authorities will work closely with relevant organizations to carefully assess the policy effectiveness of these supplementary actions.

He also confirmed the intent to take additional measures if market stability is not achieved. Specifically, potential measures being considered include introducing simulated trading or new prior investment experience requirements, as well as setting personal investment limits to no more than a certain proportion of total investment in financial investment products (for example, capping individual investments at 20% of total financial investment holdings). He stated, "We will prepare and review additional actions in advance in case investor demand does not subside sufficiently."

The authorities also asked industry participants responsible for market operation to distribute the timing of rebalancing activities. Vice Chairman Lee told the asset management industry, “There are concerns that concentrating rebalancing at the end of the trading day can amplify market volatility,” requesting that the timing be spread out. He added, “While advancing rebalancing to intra-day periods can increase uncertainty in fund returns and tracking errors, if this reduces closing price volatility or predictive trading by other investors, it can strengthen fund return stability and decrease operational risks.”

To securities firms responsible for liquidity provider work, he said, “Currently, single-stock leveraged products attract more than 20 liquidity providers per product, increased transactions between LPs, and more arbitrage trading, which has led to excessive trading volumes, according to market assessments. Since it is impossible to apply uniform regulations to a market that changes in real time, it is essential for specialized industry participants to make proactive efforts to manage market stability by appropriately adjusting liquidity themselves.”

So-called 'Samsung Electronics & SK hynix leverage' products have been criticized for turning the domestic stock market into what amounts to a ‘betting table’ by amplifying market volatility. In particular, the ‘short gamma structure’—buying more as prices rise and selling more as they fall—has worsened volatility. Since the release of leveraged products until the supplementary measures announcement on July 16, the KOSPI sidecar mechanism was triggered 19 times, and circuit breakers were activated 5 times.

Vice Chairman Lee concluded, “As the ultimate financial market authority, I am taking very seriously the recent surge in market volatility and the resulting shake in investor confidence in our capital markets. We will continue efforts to maintain macroprudential stability through leverage management in the capital markets, as well as revitalize the KOSDAQ market, encourage long-term investment, and nurture innovative companies.”

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