South Korea's Financial Services Commission is advancing the implementation timeline for stricter deposit requirements on single-stock leveraged ETFs from early August to the end of July. The Korea Financial Investment Association convened a meeting on July 21 with six major securities firms, Korea Exchange, and KOSCOM to discuss the accelerated schedule, at the request of the Financial Services Commission. The policy adjustment follows President Lee Jae-myung's directive on July 21 during a cabinet meeting, where he ordered authorities to swiftly and boldly implement supplementary measures for single-stock leveraged ETFs, stating that critics questioned whether the announced measures would be sufficient. The regulatory tightening aims to address concerns about investor risks associated with single-stock leveraged exchange-traded funds in the Korean market.
President Lee Orders Swift Implementation at Cabinet Meeting
President Lee Jae-myung directed authorities on July 21 at a cabinet meeting to swiftly and boldly implement necessary response measures for single-stock leveraged ETFs. Lee stated that critics pointed out whether the recently announced supplementary measures by authorities would be sufficient. The president's repeated calls for prompt action led authorities and the industry to accelerate schedule coordination.
Korea Financial Investment Association Convenes Technical Meeting on July 21
The Korea Financial Investment Association held a meeting on July 21 with technical staff from six major securities firms, Korea Exchange, and KOSCOM to discuss early implementation of strengthened basic deposit requirements for single-stock leveraged products. The meeting was arranged at the request of the Financial Services Commission. The association proposed advancing the deposit increase measure from August 5 to the end of July (July 31). An industry official stated that opinions converged on implementing the plan to raise the basic deposit from the existing 10 million won to 30 million won starting from July 31. Another official said that while no official document had been received, they understood it as an order to complete system implementation by the end of the month, and they had begun technical preparations on the premise of early implementation.
Deposit Requirement Increases from 10 Million Won to 30 Million Won
The association simultaneously confirmed with all securities firms in writing whether shortening the technical schedule was possible. Major securities firms as well as small and medium-sized securities firms using KOSCOM's shared ledger system 'PowerBase' reportedly communicated that they could complete technical work by the end of the month. However, additional guidance from financial authorities is needed on whether the 'end of July' proposed by authorities means the system implementation date or the point when the strengthened standards are actually applied to investors. Some securities firms believe the new standards could be applied from August 3, the next business day after system implementation. A major securities firm official stated that they conveyed the opinion that early implementation is possible as there is no significant difficulty in adjusting the technical schedule whether it is the end of this month or early next month, but noted that if the implementation date is moved forward by two business days to August 3, technical work could be conducted over the weekend after overseas stock trading is completed, making system changes much smoother.
Financial authorities are also considering advancing the 'disallowance of substitute securities' measure originally planned for around August 19, but have not yet specified the timing. Discussions are underway to shorten it by at least 2-3 business days or more, similar to the deposit increase. When the new standards are implemented, investors must hold 30 million won or more in full cash when newly purchasing or making additional purchases of single-stock leveraged ETFs. Currently, not only cash in accounts but also substitute securities such as stocks and bonds are recognized as basic deposits, but authorities' guidance is to now recognize only cash as deposits. The new standards apply equally to single-stock leveraged ETFs listed both domestically and overseas.
Authorities believe the measures to increase the deposit amount and require full cash holdings will impact demand for Samsung Electronics and SK Hynix leveraged ETF investments. The previous day, authorities requested securities firms to calculate the scale of existing investors whose additional purchases would be restricted when implementing the basic deposit increase and substitute securities disallowance respectively. This is interpreted as an effort to gauge in advance how much product demand can be reduced when investment requirements are strengthened.
Securities Firms Confirm System Readiness by End of July
Major securities firms and small and medium-sized securities firms using KOSCOM's shared ledger system 'PowerBase' confirmed they can complete technical work by the end of the month. A financial investment industry official stated that the schedule was tight when introducing the product, and when problems emerged and supplementary measures were announced, there was insufficient consultation with the industry. The official expressed understanding of authorities' position to hurry the schedule, but noted regret that for important issues, implementation schedules should be set after examining the industry and on-site preparation status.
FAQ
What did South Korea's Financial Services Commission announce on July 21 regarding single-stock leveraged ETFs?
The Financial Services Commission is advancing the implementation timeline for increased deposit requirements on single-stock leveraged ETFs from early August to July 31. The Korea Financial Investment Association held a meeting on July 21 with six major securities firms, Korea Exchange, and KOSCOM to coordinate the accelerated schedule.
Why is South Korea accelerating the deposit requirement changes for single-stock leveraged ETFs?
President Lee Jae-myung ordered authorities on July 21 during a cabinet meeting to swiftly and boldly implement supplementary measures for single-stock leveraged ETFs. Lee stated that critics questioned whether the recently announced measures would be sufficient, prompting authorities and the industry to accelerate schedule coordination.
What are the specific deposit requirement changes for single-stock leveraged ETFs in South Korea?
The basic deposit requirement will increase from 10 million won to 30 million won, with implementation moved from August 5 to July 31. When the new standards are implemented, investors must hold 30 million won or more in full cash when purchasing or making additional purchases of single-stock leveraged ETFs. Authorities are also considering advancing the measure to disallow substitute securities, originally planned for around August 19.
