The temporary suspension of new listings of single-stock leveraged exchange-traded funds (ETFs), identified as a cause of further widening volatility in an already choppy stock market, will take effect. Asset managers that have already listed related products will also be banned from advertising those products.
Authorities also decided to raise the basic margin deposit for single-stock leveraged products from the current 10 million won to 30 million won. The current 10 million won basic deposit has counted 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 deposit.
The trading lot size for single-stock leveraged trades will also be sharply increased from 1 unit to 20 units. The measure is intended to raise the entry barrier for retail investors in single-stock leveraged ETFs.
On the 16th, relevant ministries including the Financial Services Commission said they had prepared complementary measures for single-stock leveraged products based on discussions at a market conditions review meeting chaired by the deputy prime minister for the economy.
Authorities noted, "We listed single-stock leveraged ETFs as part of easing regulations to allow domestic trading of products available overseas, but as semiconductor stocks have recently seen sharp swings, these products have amplified share price volatility and the need to protect investors has emerged," adding, "In light of this, we have 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 event-style marketing.
They also decided to raise the basic margin deposit for single-stock leveraged products. Currently, to buy a single-stock leveraged product, an investor must place a mandatory basic deposit of at least 10 million won. However, this deposit calculation has included, at 70% of market value, substitute securities in the account, such as stocks, ETFs (excluding leveraged ETFs), and bonds, in addition to cash.
To ensure that only investors who can adequately bear losses trade these products, authorities will raise the basic deposit to 30 million won starting Aug. 5. Substitute securities held by investors will be excluded from the basic deposit calculation.
Accordingly, regardless of whether domestic or overseas, to make a new investment in or add to a single-stock leveraged product, investors must maintain at least 30 million won in cash in the account. The rule recognizing only cash as the basic deposit will take effect on Aug. 19.
Starting in November, the trading unit for single-stock leveraged products will also change. Currently, investors can buy as little as 1 unit, allowing investment in these products with 10,000–20,000 won. From November, this unit will be expanded to 20 units.
Pre-education requirements for single-stock leveraged products will also be strengthened. Currently, investors can invest after completing two hours in total: one hour of basic education on general leveraged products and one hour of advanced education on single-stock leveraged products. Going forward, the advanced education will be extended by one more hour. In addition, if an investor fails to achieve a certain score (60 points) on the interim assessment during the training, they must retake the course.
In addition, authorities required securities firms (LPs) and asset managers to strictly manage ETF premium-discount ratios. The LP obligation standard for managing the deviation will be tightened from 3% to 2%, and penalties will be strengthened, including restricting new LP business in cases of intent or gross negligence.