SEOUL, July 30 (AJP) -South Korea's financial authorities are moving toward tougher curbs on single-stock leveraged exchange-traded funds, proposing to limit such products to a fixed share of retail investors' portfolios after a sharp selloff exposed the risks of heavy speculation in semiconductor stocks.
At an emergency meeting among key financial policymakers on Wednesday, Finance Minister Koo Yun-cheol, Bank of Korea Gov. Shin Hyun-song, Financial Services Commission Chairman Lee Eog-weon, Financial Supervisory Service Gov. Lee Chan-jin and presidential economic adviser Ha Joon-kyung agreed to pursue additional measures aimed at containing volatility that has intensified in recent weeks.
Under discussion is a 20 percent of an individual's total investment assets as an illustrative ceiling, although the final threshold has yet to be determined.
The move follows a violent correction in South Korean equities, where leveraged bets concentrated in Samsung Electronics and SK hynix have amplified market swings through mandatory end-of-day portfolio rebalancing.
"The participants shared the view that single-stock leveraged ETFs have contributed to stock market volatility and agreed to swiftly pursue additional measures," the Ministry of Finance and Economy said after the meeting.
Authorities are also considering imposing higher trading costs on investors engaging in excessive order activity by extending a surcharge mechanism currently used in the futures market to single-stock leveraged ETF trading.
In addition, regulators plan to require simulated trading alongside the existing mandatory investor education program before retail investors can trade the products.
The government will also seek legal authority to temporarily lower leverage ratios during periods of market stress, similar to Hong Kong's variable leverage framework. Under such a system, regulators could reduce the leverage of a 2x ETF to 1.5x if volatility becomes excessive.
Officials said implementation details and the timetable would be finalized after consultations with regulators and industry participants.
The latest measures come on top of restrictions unveiled earlier this month.
Beginning Friday, investors seeking to purchase additional single-stock leveraged ETFs will be required to maintain a minimum cash deposit of 30 million won ($20,600), up from 10 million won. The requirement will apply to both domestic and overseas single-stock leveraged ETFs.
From August, mandatory investor education will be extended from two hours to three hours, while trading from November will be limited to increments of 20 shares to discourage excessive turnover.
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