Financial authorities eye cap on single-stock leveraged ETFs in individual portfolios
Finance Minister Koo Yun-cheol, center, poses with other financial authorities before an emergency meeting in Seoul, Wednesday. From left are senior presidential secretary for economic growth Ha Jun-kyung, Financial Services Commission Chairman Lee Eog-weon, Koo, Bank of Korea Gov. Shin Hyun-song and Financial Supervisory Service Gov. Lee Chan-jin. Yonhap
Korea's financial authorities said Wednesday they are considering imposing a cap on the proportion of single-stock leveraged exchange-traded funds (ETFs) in individual investment portfolios as part of efforts to curb extreme stock market volatility.
Finance Minister Koo Yun-cheol and the heads of other financial authorities discussed the measure during an emergency meeting, with one option being to cap such ETFs at 20 percent of retail investors' portfolios, although no decision has been made on the threshold.
"The participants shared the view that single-stock leveraged ETFs have contributed to stock market volatility, and vowed to come up with swift and bold countermeasures," the finance ministry said.
Other measures under consideration include imposing a heavier financial burden on brokerage firms to curb excessive trading.
Authorities are also considering introducing a simulated trading requirement in addition to the existing mandatory pre-trading education program.
The government will also seek to establish a legal basis for activating market stabilization measures in emergency situations caused by single-stock leveraged ETFs.
Earlier this month, the government implemented a set of measures to address stock market volatility, including limiting the launch of additional single-stock leveraged products and related advertisements.
Starting Friday, the minimum cash deposit required to invest in single-stock leveraged ETFs will be raised to 30 million won ($20,600) from the previous 10 million won. In August, the mandatory education program will be extended from two hours to three hours.
In addition, investors will be allowed to trade single-stock leveraged ETFs only in batches of 20 shares starting in November, which regulators say will help reduce turnover.
The meeting was also attended by Bank of Korea (BOK) Gov. Shin Hyun-song, Financial Services Commission Chairman Lee Eog-weon and Financial Supervisory Service Gov. Lee Chan-jin.
Participants assessed that the recent market volatility was also driven by intensifying competition in the memory chip industry due to the rise of Chinese rivals, along with concerns over fundraising by major U.S. technology companies.
They also agreed that Korea's economic fundamentals remain strong, stressing that excessive concerns over the outlook for the country's stock market should be avoided.