The minimum deposit required to trade domestic and overseas single-stock leveraged products will be tripled to 30 million South Korean won from 10 million won, with investors required to provide the full amount in cash.
Deputy Prime Minister and Finance Minister Koo Yoon-cheol discussed the measures at a joint market monitoring meeting in Seoul on Thursday with Bank of Korea governor Shin Hyun-song, Financial Services Commission chairman Lee Eok-won and Financial Supervisory Service governor Lee Chan-jin.
They attributed the recent market volatility to a combination of profit-taking and portfolio rebalancing after a sharp equity rally, divergent views on the global artificial intelligence cycle and semiconductor outlook, and South Korea's heavy economic and stock-market exposure to the chip sector.
The products were introduced to address regulatory disparities between domestically and overseas-listed investment products and to broaden the domestic market.
Authorities, however, said the market capitalization and trading volume of single-stock leveraged products had increased rapidly, raising concerns that they could add to market volatility.
A total of 16 exchange-traded funds and two exchange-traded notes offering two-times long or inverse exposure to Samsung Electronics and SK hynix were listed on the Korea Exchange's main bourse on May 27.
Since their listing, program-trading sidecars have been triggered 19 times on the KOSPI through Thursday, while marketwide circuit breakers have been activated five times.
These measures reflect overall market volatility, although they do not necessarily mean that single-stock leveraged products were the direct cause of each disruption.
Authorities will halt new listings of leveraged, inverse and covered-call products until market conditions stabilize.
Securities firms and asset managers will also be barred from advertising or conducting promotional events for products that are already listed.
Along with the higher deposit requirement, authorities will strengthen investor education and risk disclosures and increase the minimum trading unit for the products.
Rules for liquidity providers will also be tightened to prevent market prices from deviating excessively from underlying asset values.
The current deviation-management thresholds are 3 percent for domestic equity ETFs and ETNs and 6 percent for overseas equity products. Securities firms and asset managers that breach the strengthened requirements will face tougher sanctions.
Authorities said they would continue monitoring trading flows and the market impact of single-stock leveraged products and consider additional measures if necessary.
They said the immediate market reaction had been limited but pledged to closely monitor developments and proceed with measures to ease higher borrowing costs for small and midsized enterprises, self-employed owners and other financially vulnerable groups.
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