Regulator raises minimum deposit requirement for leveraged ETFs amid wild swings
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Korea's financial regulator on Thursday unveiled a set of measures on leveraged exchange-traded funds (ETFs) to help ensure market stability and protect investors, as the country is experiencing extreme market volatility.
According to the Financial Services Commission (FSC), the listing of new ETFs tracking Samsung Electronics and SK hynix will be suspended temporarily and investors' minimum deposit requirement for a single-stock leveraged ETF will be hiked to 30 million won (US$20,000) in cash only from the current 10 million won in mixed stocks and cash.
Also, investors will be allowed to trade a batch of 20 shares in the leveraged ETFs, which the regulator says will reduce turnover.
The leveraged ETFs, which debuted in May this year, multiply daily moves in the underlying stocks by two times, which have been causing extreme market swings.
Retail investors have been rushing to trade leveraged ETFs with underlying assets tracking the two chipmakers -- Samsung and SK hynix, which have been on a bull run amid the artificial intelligence (AI) fever.
The latest move comes days after President Lee Jae Myung called on regulatory authorities to draw up measures to help stabilize the market.
The revised minimum deposit requirement will take effect on Aug. 5, followed by the introduction of a cash-only deposit requirement on Aug. 19.
The change to the minimum trading unit is scheduled to be implemented in November.
In addition, penalties will be strengthened to hold brokerage firms and asset managers more accountable for managing tracking errors, while investor protection measures, including enhanced risk disclosures and pre-investment education, will also be reinforced.
The FSC estimated that the stricter deposit requirements will reduce the combined market capitalization of single-stock leveraged products, currently valued at about 12 trillion won, to roughly one-third of its current size.