South Korea regulator to implement measures to cool leveraged ETF market

Key facts

• South Korea's Financial Services Commission (FSC) plans to introduce measures to cool the single-stock leveraged ETF market.
• The FSC will revise the Capital Markets Act to enable market stabilization.
• Brokerages will be instructed to set investment limits for single-stock leveraged ETFs.
• A hike in the minimum cash deposit for these ETFs is set to take effect on Friday.

South Korea's financial regulator announced on Thursday its intention to implement measures to cool the single-stock leveraged exchange-traded fund (ETF) market as soon as possible. This decision follows an emergency market inspection meeting held by the Financial Services Commission (FSC) with other relevant agencies. Concerns have been raised that these investment products have amplified market volatility, leading to sharp sell-offs and significant losses for retail investors.

The FSC plans to revise the Capital Markets Act with the Financial Supervisory Service (FSS) to establish the legal framework for market stabilization measures. Additionally, the FSC will direct brokerages to impose limits on the maximum investment amount in single-stock leveraged ETFs to prevent investors from taking excessive risks. These new measures come shortly after financial authorities decided to increase the minimum cash deposit required for investing in these ETFs, a change scheduled to take effect on Friday.

The South Korean benchmark Korea Composite Stock Price Index (KOSPI) has recently experienced extreme volatility. This volatility has been partly attributed to renewed concerns over artificial intelligence spending impacting major chipmakers like Samsung Electronics and SK hynix. The KOSPI, which had surpassed 9,000 points in June, fell to 5,593.56 points on Thursday. Single-stock ETFs were introduced in the South Korean market on May 27.