South Korea's Financial Services Commission (FSC) Chairman Lee Eok-won held a meeting with financial investment industry representatives on the morning of May 28 and announced potential second-tier regulations for single-stock leveraged products, including a cap limiting individual investors to 20% of their total investment funds. The announcement follows the scheduled May 31 implementation of enhanced basic deposit requirements (30 million won in cash, no substitute securities accepted) and comes as speculative overheating in single-stock leveraged products has not subsided. Lee stated the measures are being prepared in case demand does not sufficiently calm after the first-tier regulatory package announced on May 16, which included a temporary suspension of new listings and advertising for such products. The meeting took place at the Korea Financial Investment Association in Yeouido, Seoul, with attendance from major securities firms, asset management companies, and securities-related institutions.
FSC Announces Second-Tier Regulatory Measures Under Review for Single-Stock Leveraged Products
Chairman Lee Eok-won stated during the meeting that the FSC will closely monitor the policy effects of the basic deposit enhancement and other complementary measures to be implemented on July 31 (note: source states "7월 31일" which translates to July 31, though context suggests this may refer to May 31 mentioned earlier). He announced that additional measures are being reviewed and prepared in advance in case demand does not sufficiently calm, including further raising investment requirements and setting individual investment limits.
The additional measures under review by the FSC include a total investment cap that would allow investors to purchase single-stock leveraged products only within a certain percentage (example: 20%) of their total investment funds. The measures also include establishing prior investment experience requirements, introducing simulated trading, and implementing periodic re-education to significantly raise entry barriers.
Lee stated, "We will closely examine the policy effects of the complementary measures including the basic deposit enhancement to be implemented on July 31. In case demand does not sufficiently calm, we will review and prepare in advance additional measures such as further raising investment requirements and setting individual investment limits."
![Financial Services Commission]()
Financial Services Commission [Provided by Financial Services Commission]
FSC Requests Asset Managers to Disperse Rebalancing Timing from Market Close to Intraday
The FSC requested improvements to market operation practices alongside investor demand suppression measures. Specifically, the regulator directed the asset management industry to change the practice of concentrating rebalancing transactions immediately before market close.
Leveraged funds conduct large-scale trading of underlying stocks at the end of the trading day to match daily return multiples, which maximizes closing price volatility and triggers predictive trading by other investors, according to persistent criticism.
Chairman Lee stated, "While there are concerns that advancing rebalancing timing to intraday could expand fund return uncertainty or tracking error, if it can reduce closing price volatility or predictive trading, it could rather enhance fund return stability and reduce operational risk." He urged asset managers to make forward-looking decisions.
FSC Requests Liquidity Providers to Self-Regulate Excessive Liquidity Levels
The FSC requested the securities industry, which serves as liquidity providers (LPs), to voluntarily adjust liquidity levels. The regulator noted that trading volumes have become excessive with more than 20 LPs participating per single stock.
Chairman Lee requested that the industry, which possesses expertise, voluntarily adjust liquidity to appropriate levels rather than the authorities imposing uniform regulations on a real-time changing market.
FSC Confirms August 19 Divergence Rate Management Implementation and Expedited Minimum Trading Unit Expansion
The FSC confirmed it will proceed without disruption with the strengthening of divergence rate management scheduled for implementation on August 19. The regulator is also continuing consultations with the industry to significantly advance the implementation timing of the minimum trading unit expansion measure (1 share → 20 shares) originally scheduled for November.
FAQ
What did South Korea's FSC Chairman announce on May 28 regarding single-stock leveraged products?
FSC Chairman Lee Eok-won announced on May 28 that the commission is reviewing second-tier regulatory measures for single-stock leveraged products, including a potential cap limiting individual investors to 20% of their total investment funds. These measures are being prepared in case speculative demand does not sufficiently calm after the May 31 implementation of enhanced basic deposit requirements (30 million won in cash, no substitute securities).
Why is the FSC requesting asset managers to change rebalancing timing for leveraged funds?
The FSC requested asset managers to disperse rebalancing timing from market close to intraday because leveraged funds currently conduct large-scale trading of underlying stocks immediately before market close to match daily return multiples. This practice maximizes closing price volatility and triggers predictive trading by other investors, according to the regulator.
What regulatory measures for single-stock leveraged products are scheduled for implementation after May 31?
The FSC confirmed that divergence rate management strengthening is scheduled for implementation on August 19. Additionally, the minimum trading unit expansion measure (1 share → 20 shares), originally scheduled for November, is being expedited through ongoing consultations with the industry.
