The measure to raise the basic deposit for single-stock leveraged exchange-traded funds (ETFs), which had been scheduled to take effect next month, will take effect starting on the 31st of this month. President Lee Jae-myung on the 21st in a Cabinet meeting ordered the swift implementation of supplementary measures for single-stock leveraged ETFs, moving up the timeline.
The Financial Services Commission said on the 24th that, "To promptly stabilize the market, we decided after discussions with related agencies and industries to implement early key measures such as raising the basic deposit and disallowing substitute securities, while detailing the execution timeline."
Through measures released on the 16th, authorities decided to raise the basic deposit related to single-stock leveraged products from the current 10 million won to 30 million won. Until now, not only cash in the account but also 70% of the market value of substitute securities such as stocks, ETFs, and bonds had been counted toward the basic deposit, but going forward only cash will be recognized as the basic deposit.
The Financial Services Commission (FSC) explained, "Taking into account each securities firm's IT development schedule, we had decided to raise the basic deposit amount from the current 10 million won to 30 million won on Aug. 5 and to prohibit recognition of substitute securities within the basic deposit on Aug. 19. However, to swiftly stabilize demand, we will strengthen the basic deposit earlier than originally planned through active IT development cooperation from related agencies and the financial investment industry," adding, "For securities firms that do not complete IT development within the deadline, we plan to recommend restricting the handling of new transactions related to single-stock leveraged products."
This means raising the level of regulation even before all related systems are in place, at a time when leveraged ETFs with Samsung Electronics and SK hynix as their respective underlying assets have a significant impact on the stock market.
Authorities also decided to improve the current method that immediately recognizes the basic deposit as equivalent to cash on the trade date (T) when selling substitute securities such as stocks and bonds. For single-stock leveraged products only, they will recognize it as a cash deposit on the day the cash actually settles (T+2), after securities are sold, to prevent rapid-fire trading of those products.
Proceeds borrowed using the sale amount as collateral will also be excluded from the basic deposit.
The Financial Services Commission (FSC) will also move up the implementation of the trade quantity unit adjustment (from 1 share to 20 shares), which had been set for November. It added that measures to strengthen premium/discount management by tightening the responsibility of securities firms and asset managers and shortening the designation process for investment caution items will be implemented from Aug. 19 after going through revisions to exchange rules and detailed enforcement regulations.