The provisional listing of new single-stock leveraged exchange-traded funds (ETFs), cited as a cause of further widening volatility in an already choppy stock market, will be suspended. Asset managers that have already listed related products will also be banned from advertising them.
Authorities also decided to raise the basic margin for single-stock leveraged products from the current 10 million won to 30 million won. The current 10 million won basic margin recognizes not only cash in the account but also 70% of the market value of substitute securities such as stocks, ETFs, and bonds, but going forward only cash will be recognized as the basic margin.
The trading lot size for single-stock leverage will also be sharply raised from 1 unit to 20 units. The measure is intended to significantly raise the entry barrier for retail investors in single-stock leveraged ETFs.
The Financial Services Commission and other relevant ministries said on the 16th that, based on discussions at a market conditions review meeting chaired by the deputy prime minister for the economy, they prepared supplementary measures for single-stock leveraged products along these lines.
Authorities said, "We listed single-stock leveraged ETFs as part of easing regulations to allow products available overseas to be traded domestically, but as semiconductor stocks have recently seen large swings, these products have amplified share-price volatility and the need to protect investors has emerged," and added, "In light of this, we prepared safeguards."
First, authorities decided to temporarily suspend new listings related to single-stock products, including inverse and covered-call products, until the market stabilizes. For single-stock leveraged products that are already listed and being traded, securities firms and asset managers will be immediately prohibited from advertising and promotional event marketing.
The basic margin for single-stock leveraged products will be strengthened. Currently, to make a new purchase of a single-stock leveraged product, investors must deposit a basic margin of at least 10 million won. Even then, not all of it has to be cash, as substitute securities in the account—such as stocks, ETFs (excluding leveraged ETFs), and bonds—are counted at 70% of market value toward the basic margin.
Authorities decided to raise the basic margin to 30 million won starting Aug. 5 so that only investors who can sufficiently bear losses can trade the products.
In addition, substitute securities held by investors will be excluded from the basic margin calculation. Regardless of whether domestic or overseas, to make a new investment in or additional purchase of single-stock leveraged products, investors must maintain at least 30 million won in cash as the basic margin. Recognizing only cash as the basic margin will take effect starting Aug. 19.
Starting in November, the trading lot size for single-stock leveraged products will also change. Currently, even 1 unit can be purchased, allowing investment with 10,000 to 20,000 won. Beginning in November, this unit will be expanded to 20 units.
Pre-investment education required for investing in single-stock leveraged products will also be strengthened. Currently, investors can invest after completing a total of two hours: one hour of basic education on general leveraged products and one hour of advanced education on single-stock leveraged products. Going forward, one additional hour of advanced education will be newly added. Also, if an investor falls short of a certain score (60 points) on the mid-course assessment, they must retake the course.
In addition, authorities required securities firms (LPs) and asset managers to strictly manage ETF divergence rates. The LP's divergence management threshold will be tightened from 3% to 2%, and penalties will be strengthened, including restricting new LP activities in cases of willful misconduct or gross negligence.