The Financial Services Commission (FSC) will implement stricter basic deposit requirements for single stock leverage exchange-traded funds (ETFs) and exchange-traded notes (ETNs) starting July 31, ahead of the previously scheduled date. This measure aims to stabilize investor demand early, requiring investors to hold at least 30 million won in cash to make new investments or additional purchases.
On July 24, the FSC announced the early implementation of the 'Strengthening Basic Deposit Requirements for Single Stock Leverage Products' after consultations with relevant agencies and the financial investment sector. This decision follows a market situation review meeting held on July 16, where the FSC outlined supplementary measures for single stock leverage products.
Under the new rules, individual investors wishing to invest in or purchase additional shares of domestic and foreign single stock leverage products must have at least 30 million won in cash. Previously, securities such as stocks, ETFs, and bonds could be counted as 70% of the market value toward the basic deposit, with a minimum deposit requirement of 10 million won.
The new system excludes securities from the calculation of the basic deposit. Additionally, the previous system that allowed brokerage firms to relax basic deposit requirements based on trading experience will be abolished. While increases in deposit requirements are permitted, reductions will not be allowed.
The FSC has also revised the cash deposit recognition method. Going forward, even if securities are sold, the cash will only be recognized as a basic deposit once the settlement is completed and the actual cash is deposited into the account (T+2 days). Loans taken against the proceeds from sales will also be excluded from the basic deposit. This measure aims to prevent circular trading, where investors sell stocks and immediately buy single stock leverage products.
The strengthened basic deposit requirements will also apply to existing investors making additional purchases. However, if they sell their holdings, the basic deposit requirements will not apply.
The FSC plans to expedite the development of brokerage firm systems. Firms that fail to complete system construction by the deadline will be advised to limit new transactions in single stock leverage products.
Additionally, measures to strengthen management of price discrepancies will be implemented following amendments to exchange regulations, effective August 19. The obligations of liquidity providers (LPs) regarding price discrepancy management will be reinforced, and the procedures for designating investment caution items will be expedited.
The minimum trading quantity for single stock leverage products will be increased from 1 to 20 shares, with efforts to expedite the processing procedures and system development to implement this change earlier than the originally planned November date. A temporary halt on new listings and a ban on advertising were implemented immediately following the July 16 meeting, with the price discrepancy management enhancements set to take effect on August 19.
The FSC stated, 'We will continuously monitor the impact of the supplementary measures and the market situation. If the market does not stabilize, we will consider additional measures after in-depth discussions with experts and investors.' It emphasized that efforts to revitalize the KOSDAQ market, encourage long-term investment, and introduce innovative financial products will continue unwaveringly.
* This article has been translated by AI.
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