From August 19, Stricter Deviation Management for All ETFs and ETNs... Simulated Trading Mandatory for Single-Stock Leveraged Products

Starting from August 19, the standards for tracking error management of all Exchange-Traded Funds (ETFs) and Exchange-Traded Notes (ETNs) will be strengthened. When investing in domestic single-stock leveraged products, simulated trading will be mandatory.

The Financial Services Commission announced on August 12 that it had approved the “Amendment to the KRX Stock Market Business Regulations,” which includes these changes, at its 1st Extraordinary Regular Meeting.

The amendment strengthens securities companies’ obligations for tracking error management of all ETFs and ETNs. The deviation limits will be lowered from 3% for domestic and 6% for overseas assets to 2% for both domestic and overseas assets. The calculation criteria have also been clarified, specifying that negative tracking error rates should be handled using absolute values.

Securities companies that deliberately or repeatedly violate their tracking error management obligations will be restricted from offering new liquidity provision services. Additionally, the designation process for securities requiring investment caution will be streamlined from the previous three steps—screening, pre-notification, and designation—to just two steps: screening or pre-notification and designation.

The simulated trading service, which is already applied to futures, options, and short selling, will now also apply to domestic and overseas single-stock leveraged products, raising the barrier to entry for such investments. As new requirements for investing in single-stock leveraged products, investors will now need a minimum cash deposit of 30 million won, completion of a three-hour pre-investment education, and successful completion of simulated trading.

The simulated trading service is available through the Korea Exchange website. New investors must participate in simulated trading for a total of at least five trading days, with at least one hour required per trading day.

An official from the Financial Services Commission stated, "While some volatility in the stock market has recently subsided, there are still lingering risk factors. Accordingly, relevant institutions will continue to monitor market conditions."

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