Government Imposes Strict Regulations on Single-Stock Leveraged Products to Curb Market Volatility

The government has initiated comprehensive regulatory measures targeting single-stock leveraged products, which have recently shown signs of investment overheating and increased stock market volatility.

Authorities have decided to temporarily suspend the launch of new products, significantly increase the minimum deposit requirement to 30 million won, and impose a total ban on advertising for these products.

The Financial Services Commission, the Financial Supervisory Service, and the Korea Exchange announced the supplementary measures for single-stock leveraged products today, following discussions at a market situation assessment meeting presided over by Deputy Prime Minister for Economy Koo Yun-cheol.

First, the minimum deposit requirement for investing in single-stock leveraged products will be raised from the current 10 million won to 30 million won.

Previously, investors could meet the 10 million won requirement by using 7 million won worth of existing stocks and 3 million won in cash. However, under the new rules, investors must hold the entire 30 million won in cash to invest in these products.

In effect, the minimum cash requirement has increased from 3 million won to 30 million won.

Trading units will also be restricted to a minimum of 20 shares.

Currently, single-stock leveraged products are issued and traded at prices similar to typical leveraged products, ranging from 10,000 to 20,000 won, allowing for investments at prices lower than the underlying assets such as Samsung Electronics or SK Hynix.

However, the government expects that increasing the trading unit to 20 shares will have the effect of reducing trading volume.

The increase in the minimum deposit requirement is scheduled to be implemented in August, while the change in trading units is expected to take effect in November, considering the time required for securities firms to update their computer systems.

Management of the tracking error rate will also be strengthened.

The tracking error rate is an indicator that expresses the percentage difference between an ETF's actual value, or net asset value, and its actual market trading price.

The criteria for securities firms' obligation to manage the tracking error rate will be tightened from the current 3% to 2%, and the government will consider restricting new ETF listings for asset management firms that violate the appropriate tracking error rate standards.

The government will temporarily suspend the listing of new single-stock leveraged products until the market stabilizes.

Furthermore, advertising and marketing for products already being traded will be prohibited.

Reported by Kim Jiuk | Video by Ahn Jun-hyeok | Graphics by Yang Hye-min | Produced by SBS Digital News
※ Please note: This article was translated by AI and may contain errors.