Starting on the 19th, paper trading will be mandatory for individual investors who want to invest in single-stock leveraged products. The deviation rate management standards for exchange-traded funds (ETF) and exchange-traded notes (ETN) will also be strengthened from the current levels.
The Financial Services Commission said on the 12th that it held the first extraordinary regular meeting and approved the "Korea Exchange (KRX) KOSPI market business regulation amendment" containing these measures.
The core of the amendment is to mandate paper trading for investors in single-stock leveraged products. The aim is to ensure they understand the product's characteristics through sufficient experience. Paper trading participants must complete five or more trading days, at least one hour per trading day, for a total of five hours or more. The paper trading service is available on the Korea Exchange (KRX) website.
Accordingly, from the 19th, general individual investors seeking to newly invest in domestically listed and overseas-listed single-stock products must hold a basic deposit of 30 million won, complete one hour of basic education and two hours of advanced education, and complete paper trading.
The management framework will also be reinforced to keep deviation rates low. The obligation standards for securities firms to manage deviation rates will be reduced from the current 3% for domestic products and 6% for overseas products to 2% and 5%, respectively. If the deviation rate exceeds twice the obligated management range, the product becomes subject to extraction and advance designation notice. If within 10 trading days from the notice date the deviation rate again exceeds twice the obligated range, it will be designated as an investment caution item.
Once designated as an investment caution item, single-price trading applies for three trading days. If on the final day of single-price trading the deviation rate is at least three times the obligated range, trading will be suspended for one trading day and then single-price trading will resume. In addition, for liquidity providers (LP) that intentionally, through gross negligence, or habitually violate the obligation to manage deviation rates, new liquidity provision operations will be restricted.
An official at the Financial Services Commission said, "Although volatility in the stock market has somewhat eased recently, risk factors still remain, so relevant agencies will closely monitor market conditions while swiftly pushing ahead with the supplementary measures for single-stock leveraged products released on July 16 and July 29."