The financial authorities are considering raising the minimum deposit requirement and setting individual investment limits for single-stock leveraged products if investment demand does not sufficiently stabilize. Asset management companies were urged to disperse rebalancing concentrated near market close, while securities firms were asked to voluntarily adjust excessive liquidity provision.
Financial Services Commission (FSC) Chairman Lee Bok-hyun stated at a financial investment industry meeting held at the Korea Financial Investment Association in Yeouido, Seoul, on the 28th, “Concerns and anxieties about single-stock leveraged products continue to grow in the market,” adding, “The government, related agencies, and the industry must share awareness of the situation and discuss supplementary measures.”
Chairman Lee explained that the introduction of single-stock leveraged products was intended to manage domestic investors' demand, which was flowing overseas, within the domestic regulatory framework. As domestic investors' investments in similar overseas-listed products were rapidly increasing, there was a need for domestic products with investor protection measures such as credit and margin trading bans, pre-education, and minimum deposit requirements.
However, since the product launch on May 27, investment demand surged faster than expected, coinciding with high volatility in the semiconductor sector. Chairman Lee noted, “While there was an effect in mitigating investment demand for similar overseas-listed products, concerns arose that stock price volatility could further intensify.”
The FSC will expedite the implementation of the supplementary measures announced on the 16th. New listings and advertisements for single-stock leveraged products have been temporarily suspended, and the minimum deposit requirement has been strengthened from 10 million won (including substitute securities) to 30 million won in cash. Although initially planned for August, the measures will be applied from the 31st with cooperation from the securities industry on system development.
Discussions are underway to advance the expansion of the minimum trading unit earlier than planned. Pre-education will be enhanced with evaluations and an additional hour of case-based training. Measures to strengthen the responsibility of securities firms' liquidity providers (LPs) and asset management companies in managing tracking errors will take effect from September 19.
Chairman Lee clarified that if market overheating persists after these measures, additional regulations will be implemented. He stated, “We will first closely monitor the effects of policies such as the strengthened minimum deposit requirement,” adding, “If demand does not sufficiently stabilize, we will review and prepare additional measures, including raising investment requirements and setting individual investment limits.”
Proposed additional measures include periodic re-education, simulated trading introduction, and new pre-investment experience requirements. A total investment management plan, which would limit single-stock leveraged product investments to a certain percentage (within 20%) of an investor's total financial investment product holdings, is also under consideration.
Chairman Lee urged the asset management industry to disperse rebalancing transactions that tend to concentrate right before market close. Single-stock leveraged products buy and sell underlying stocks or futures daily to meet target leverage ratios, and concerns have been raised that these transactions, clustered near the end of the session, could amplify closing price volatility.
He stated, “There are concerns that rebalancing concentrated just before market close further exacerbates market volatility,” and requested, “Please disperse the timing of rebalancing.” While intraday rebalancing could potentially widen tracking errors, he emphasized that spreading out rebalancing would reduce closing price volatility and speculative trading by other investors, thereby enhancing product return stability and lowering operational risks.
He also called on securities firms acting as liquidity providers (LPs) to autonomously adjust liquidity supply. The market has noted that single-stock leveraged products currently involve over 20 LPs per stock, and the expansion of trade settlements and arbitrage among LPs has led to excessively high trading volumes.
Chairman Lee also mentioned that recent market volatility has shaken investor confidence in capital markets. He said, “As the ultimate responsible party for financial markets, I take this very seriously,” and pledged, “We will prioritize financial market stability and investor protection, swiftly advancing supplementary measures.”
He added, “Now, more than ever, safeguarding market trust is critical,” and urged, “As key players and infrastructure institutions supporting capital markets, the financial investment industry must demonstrate the highest level of responsibility and commit all efforts to restoring market confidence.”
