In response to the volatility in the stock market attributed to single-stock leverage products, financial authorities are moving to establish individual investment limits. This measure aims to mitigate excessive concentration by restricting investors from allocating the majority of their assets to single-stock leverage products.
On July 30, the Financial Services Commission (FSC) released a detailed plan for additional measures regarding single-stock leverage products, following an emergency market situation assessment meeting held the previous day with relevant government departments.
The core of the new measures is the establishment of individual investment limits. The FSC plans to require each brokerage firm to set investment limits for single-stock leverage products on a per-account basis, with the method of determining these limits to be developed through discussions with relevant agencies and the industry. One proposed example is to limit investments in single-stock leverage products to within 20% of the total investment amount in financial products.
The FSC expects that this will prevent individuals from taking on excessive risks by investing most of their assets in single-stock leverage products. Detailed plans will be jointly developed by the Korea Financial Investment Association, the FSC, the Financial Supervisory Service, and the Korea Exchange.
Additionally, the authorities will strengthen transaction cost burdens to curb excessive short-term trading. They are considering imposing additional costs on investors who excessively trade single-stock leverage products, similar to the 'excessive order burden fee' currently in place in the derivatives market. The specifics regarding the targets, methods, and levels of these costs will be finalized after discussions with exchanges and the industry.
Investor protection measures will also be enhanced. Currently, only pre-investment education is mandatory for individual investors, but there are plans to require completion of simulated trading, similar to the requirements for exchange-traded derivatives. The FSC aims to encourage investors to understand the risks of the products thoroughly before investing through simulated trading.
Furthermore, the financial authorities are pushing for amendments to the Capital Markets Act to enable rapid implementation of market stabilization measures in the event of sudden market instability. Drawing on the 'Flexible Leverage' system recently adopted by the Hong Kong Securities and Futures Commission, which allows adjustments to the leverage ratios of products based on asset management capabilities, the FSC plans to establish a legal basis for timely actions without the need for separate legislative amendments during emergencies.
Previously, Deputy Prime Minister and Minister of Economy and Finance Koo Yun-cheol held an emergency market situation assessment meeting on July 29 with the Bank of Korea Governor, the FSC Chair, and the Financial Supervisory Service Head to discuss responses to the recent stock market decline. Participants expressed concerns that the concentration of investments in single-stock leverage products is exacerbating market volatility and agreed to implement existing supplementary measures, such as raising the basic deposit requirement, as scheduled starting July 31, while swiftly advancing additional measures.
The FSC stated, 'We plan to promptly develop detailed plans for each major task centered on the responsible agencies and implement them as soon as possible.'
* This article has been translated by AI.
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