South Korea’s financial authorities are moving ahead with amendments to the Capital Markets Act that would give regulators emergency intervention powers during periods of sharp stock-market volatility, according to NATE. The Financial Services Commission and the Financial Supervisory Service have already begun work on the legal revisions, with a particular focus on single-stock leveraged exchange-traded funds that were seen as amplifying recent market declines. The planned measures include adjusting leverage ratios and setting investment caps to reduce the risks tied to concentrated trading in stressed market conditions. Regulators are also considering personal investment limits for single-stock leveraged ETFs, with the cap to be standardized at around 20% to prevent excessive concentration of capital. In addition, they are looking at introducing a real-trading simulation system to improve investor understanding of leveraged product risks. South Korean regulators said higher base margin requirements are meant to raise the entry threshold, while investment caps would effectively place a ceiling on inflows, creating a complementary risk-control framework. The country already raised the minimum margin requirement for investors in single-stock leveraged ETFs from 10 million won to 30 million won starting July 31. Data showed that on the first day of the new rule, turnover in 16 related leveraged ETFs fell to about 3 trillion won, roughly one quarter of the previous session’s 12.4 trillion won and about 80% below the 15 trillion won recorded on July 29.
South Korea’s financial regulators are pushing ahead with amendments to the Capital Markets Act that would grant authorities emergency intervention powers to take direct market-stabilization steps during periods of sharp stock-market volatility, according to NATE.
The Financial Services Commission (FSC) and the Financial Supervisory Service (FSS) have started work on the legal revisions. The effort is centered on single-stock leveraged exchange-traded funds, or ETFs, which were viewed as having amplified volatility during the recent stock-market selloff.
Single-stock leveraged ETFs are the main focus
Under the plan, regulators are preparing a set of measures that includes adjusting leverage ratios and setting investment caps. The goal is to reduce risks tied to concentrated trading flows when markets move abnormally.
Authorities are also considering personal investment limits for single-stock leveraged ETFs, with the ceiling to be standardized at around 20% to prevent excessive concentration of funds. South Korea is also looking at introducing a real-trading simulation system to improve investor understanding of the risks linked to leveraged products.
Higher margin rules and investment caps would work together
Regulators said the increase in base margin requirements is intended to raise the threshold for participation, while investment caps would function as a ceiling on incoming funds. Together, the two measures would form a complementary risk-control framework.
South Korea had already raised the minimum margin requirement for investors in single-stock leveraged ETFs from 10 million won to 30 million won starting July 31.
Turnover dropped after the new rule took effect
Data showed that on the first day of the new requirement, turnover in 16 related leveraged ETFs came in at about 3 trillion won. That was roughly one quarter of the previous trading day’s 12.4 trillion won and about 80% lower than the 15 trillion won recorded on July 29.
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