KB News Desk
South Korea is tightening restrictions on single-stock leveraged exchange-traded funds tracking the country’s top chipmakers, which regulators have blamed for exacerbating market volatility, the Finance Ministry announced Thursday.
The measures include tripling the minimum cash deposit requirement and suspending new listings of similar products.
Following a meeting of the country’s top financial policymakers, including the heads of the Finance Ministry, the Financial Services Commission, the Financial Supervisory Service and the Bank of Korea, officials announced measures to tighten safeguards for single-stock leveraged ETFs tied to Samsung Electronics and SK hynix.
Under the new rules, the minimum deposit requirement for investors in single-stock leveraged products will be raised to 30 million won ($20,300) from the current 10 million won.
Previously, investors could meet the 10 million won requirement with cash or substitute securities such as stocks, ETFs and bonds, which were recognized at 70 percent of their market value. Under the revised rules, only cash deposits will count toward the requirement.
Currently, 16 single-stock leveraged ETFs linked to Samsung Electronics and SK hynix, including two inverse products, are listed on the Korea Exchange. Authorities will temporarily suspend new listings of leveraged ETFs tied to individual stocks.
They will also impose a blanket ban on advertising for single-stock leveraged products and strengthen requirements for liquidity providers to manage price deviations, aiming to prevent ETF prices from excessively diverging from the value of their underlying assets.
In addition, leveraged chip ETFs will be subject to a minimum trading unit of 20 shares, instead of the current one-share increment, a move expected to dampen trading activity.
The higher minimum deposit requirement will take effect in August, while the change in trading unit size is expected to be implemented in November.
The measures come as the Korean stock market has entered a period of heightened volatility, with leveraged chip ETFs increasingly being blamed for amplifying swings in the underlying shares of Samsung Electronics and SK hynix.
President Lee Jae Myung on Wednesday ordered swift measures to address concerns over leveraged chip ETFs, adding momentum to regulators’ efforts to tighten oversight of the products.
Local regulators approved leveraged funds tied to Samsung Electronics and SK hynix, the country’s two largest companies by market capitalization, as part of efforts to deepen the capital market. The products were listed on May 27.
