Svmuu News: The Financial Services Commission (FSC) of South Korea announced that it will bring forward the implementation of enhanced initial margin requirements for single-stock leveraged ETFs and ETNs to the end of July. Effective July 31, retail investors wishing to purchase or add to their holdings of single-stock leveraged ETFs or ETNs must hold at least 30 million won in cash in their accounts as initial margin. This measure applies to single-stock leveraged ETFs and ETNs listed both in South Korea and overseas. Financial authorities stated that they decided to accelerate the implementation of these investor protection measures due to the rapid growth in market capitalization and trading volume of these products since their launch on May 27, as well as increased volatility in the stock prices of major memory chip companies.
Data shows that the total market capitalization of the 16 single-stock leveraged products currently on the market has grown from 4.4 trillion won on May 27 to 11.9 trillion won on July 15, while trading volume has risen from 10.4 trillion won to 13 trillion won. Under the previous regulations, retail investors purchasing single-stock leveraged products were required to meet a minimum margin requirement of 10 million won, with assets such as stocks, ETFs, and bonds eligible for margin calculation. Following the implementation of the new regulations, the initial margin requirement has been raised to 30 million won, and only cash assets are recognized; the conversion of securities into margin is no longer permitted.
Furthermore, proceeds from the sale of securities can only be counted toward the initial margin after settlement is completed and the funds are actually credited to the account on T+2; loan amounts obtained using proceeds from sales as collateral are also excluded from the margin calculation. The Financial Services Commission stated that this measure aims to curb high-frequency circular trading, in which investors sell and immediately repurchase leveraged products on the same day.
For existing investors making additional purchases, the 30 million KRW cash margin requirement also applies; however, sell transactions are not subject to margin restrictions.
South Korean financial authorities had previously suspended new listings of single-stock leveraged ETFs/ETNs effective July 16 and restricted related advertising. Future plans include strengthening the management mechanism for product premium rates, shortening the process for designating securities subject to investment warnings, and advancing adjustments to trading units.
The Financial Services Commission stated that it will continue to monitor market trends for these products and, if market overheating persists, will consider taking further supplementary measures. (Chosun)