New investors in single-leveraged exchange-traded funds (ETFs) in South Korea will be required to complete simulated trading exercises, as the country tightens regulations on these high-risk products that can amplify market volatility.
The Financial Services Commission of South Korea announced that new investors must finish at least five days of simulated trading, with a total duration of no less than five hours, before purchasing single-leveraged ETFs. The rule, set to take effect on August 19, applies to both domestic and overseas investments in these products.
This is the latest move by South Korean regulators to curb retail investor participation in leveraged ETF trading, following significant losses totaling billions of dollars due to sharp declines in related products. Earlier, the minimum cash deposit for such trades was raised to 30 million won (approximately $21,000), and the required online training time for new investors in single-stock leveraged products was extended to three hours.
Since the higher cash deposit requirement took effect on July 31, trading activity in single-stock leveraged ETFs has cooled. Regulator data shows that the turnover of these products fell to 700 billion won on August 11, down from 12.4 trillion won on July 30.
The new simulated trading exercises will be provided free of charge on the Korea Exchange website. South Korea also imposes similar simulated trading requirements for individual investors participating in derivatives trading or short-selling stocks.
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