South Korean regulators have significantly tightened the entry requirements for individual stock leveraged ETFs and ETNs, making it substantially harder for retail investors to participate in these high-risk products.
South Korea's Financial Services Commission (FSC) announced on July 24 that the minimum deposit for retail investors to purchase single-stock leveraged ETFs and ETNs will be raised from 10 million won to 30 million won. Crucially, only cash will be accepted for this deposit; securities such as stocks, ETFs, and bonds can no longer be counted toward the balance. Originally scheduled for phased implementation in August, both measures have been merged and brought forward to take effect simultaneously on July 31.
The new rules apply to all single-stock leveraged products listed on both domestic and foreign exchanges, including those tracking South Korean giants like Samsung Electronics and SK Hynix, as well as overseas names like Tesla and NVIDIA.
Key Details of the New Rules
Existing investors will also need to meet the 30 million won cash requirement when making additional purchases, but selling current holdings is not subject to the minimum deposit constraint. For securities firms that fail to complete system upgrades by July 31, regulators will recommend restricting new trading in these products.
The accelerated implementation is a direct response to the explosive growth in the market for individual stock leveraged products. Launched on May 27 with 16 underlying assets and a combined market value of 4.4 trillion won, the market had ballooned to 11.9 trillion won by July 15—an increase of over 170% in less than two months. Average daily trading volume also rose from 10.4 trillion won on the launch day to 13 trillion won by July 15.
Facing this overwhelming influx of investment demand, the financial authorities coordinated with the investment industry to speed up system development. The plan to raise the minimum deposit, originally set for around August 5, and the plan to eliminate the recognition of collateral securities, originally set for around August 19, were merged and moved forward to July 31.
Stricter Definition of 'Cash'
In addition to raising the deposit threshold, the new rules also tighten the definition of what constitutes "cash." Under current rules, funds from sold stocks are counted as cash on the same day of the sale. Under the new rules, such proceeds will only be recognized after settlement, meaning the cash will be counted on the second trading day after the sale (T+2). Loans secured by stock sale proceeds will also be excluded from the minimum deposit calculation.
Furthermore, the current system allows securities firms to lower the deposit requirement after three months of trading, taking into account a client's experience. The new rules explicitly prohibit such leniency, meaning firms can only raise, not lower, the deposit requirement in the future.
Additional Measures Under Discussion
This increase is part of a broader regulatory crackdown on individual stock leveraged products. The authorities have already implemented temporary measures since July 16, including a halt on new product listings and a ban on advertising. Tracking error management standards will be tightened from 3% to 2% starting August 19, with increased penalties for violations.
A plan to expand the minimum trading unit from 1 to 20 units, originally set for November, is also being discussed for earlier implementation.
More notably, several further measures to curb demand are under consideration, including reducing the number of liquidity providers (LPs) for single-stock leveraged ETFs, widening bid-ask spreads, and lowering the current 2x leverage ratio to approximately 1.5x.
The FSC has emphasized that existing investors must meet the new deposit requirements for additional purchases, urging them to carefully consider the implications for their investment strategies.
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