Authorities have announced measures to address the concerns surrounding single stock leverage, which has been identified as a major contributor to recent market volatility. The financial authorities have decided to immediately suspend the listing of new single stock leverage products, including inverse and covered call options, and will require a full cash deposit of 30 million won, up from the previous 10 million won, starting around August 5. Additionally, they will implement stricter entry barriers for single stock leverage investments by enhancing investor education and increasing the minimum trading unit.
On July 16, the financial authorities announced these measures following a market situation review meeting chaired by the Deputy Prime Minister at the Korea Federation of Banks.
To prevent overheating in investment demand, the launch of new single stock leverage products will be halted immediately, and all related marketing by securities firms and asset management companies will be banned. Until the market stabilizes, the listing of all products, except for the currently listed 16 single stock leverage and inverse ETFs and 2 ETNs, will be temporarily suspended.
The required basic deposit for purchasing single stock leverage products will increase from 10 million won to 30 million won. Previously, the deposit could include not only cash in the account but also the market value of stocks, ETFs (excluding leverage ETFs), and bonds, calculated at approximately 70% of their market value. Going forward, the deposit must be made entirely in cash.
Existing investors will also need to meet the 30 million won deposit requirement if they wish to purchase additional single stock leverage products. While some securities firms previously lowered or waived the basic deposit based on individual trading experience and credit status, this practice will also be prohibited. This requirement will apply equally to both domestic and foreign single stock leverage products based on domestic and foreign stocks.
Furthermore, the minimum trading unit for single stock leverage products will be increased. Previously, investors could trade from 1 unit, allowing for lower-cost investments in underlying assets like Samsung Electronics or SK Hynix. In the future, trading will only be possible in increments of 20 units.
Investor risk education will also be strengthened. Previously, investors were required to complete a total of 2 hours of training, consisting of 1 hour of basic training and 1 hour of advanced training. With the addition of case-based advanced training, the advanced training duration will increase from 1 hour to 2 hours. Moreover, there will be more mid-chapter assessments, and those who do not meet the required scores will need to retake the relevant chapter.
The responsibility for managing the discrepancy rate for liquidity providers (LPs) and asset management companies will also be reinforced. The current obligation for LPs to manage the closing price discrepancy rate, set at 3% for domestic stock ETFs and ETNs and 6% for foreign stock ETFs and ETNs, will be tightened to 2% for domestic and 5% for foreign. If LPs violate these obligations, their LP activities for new products may be restricted, and asset management companies managing the ETFs may face limitations on new ETF listings. Additionally, the process for designating a product as a cautionary item for violating the discrepancy rate will be streamlined from the current three steps to two.
These measures reflect concerns over increased market volatility following the initial launch of single stock leverage products on May 27, which saw a rapid surge in market capitalization and trading volume.
According to the Financial Services Commission, the market capitalization of the 16 single stock leverage and inverse ETFs grew from 4.4 trillion won on their listing date to 11.9 trillion won as of July 15, accounting for 2.5% of the total ETF market. On July 15, trading volume reached 13 trillion won, representing 38.2% of the total ETF trading volume, with a turnover rate exceeding 100%.
Relevant agencies are committed to swiftly implementing measures to stabilize the market and will continue to monitor the situation closely. Should the market remain unstable, they will consider additional measures through in-depth discussions with experts and investors.
* This article has been translated by AI.
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