South Korea’s Financial Services Commission is pushing forward with amendments to the Capital Markets Act together with the Financial Supervisory Service, according to BlockBeats on Aug. 2. The centerpiece is a proposed “emergency measures” power that would let financial authorities temporarily reduce the tracking multiple of single-stock leveraged ETFs from the current 2x to 1.5x or 1x during periods of sharp market volatility, without requiring a vote at a beneficiaries’ meeting.
Current approval rules can slow action
Under the existing legal framework, a change in leverage multiple is treated as a core term directly tied to investor returns. That means any adjustment must be approved at a beneficiaries’ meeting, with support from more than half of the voting rights present and from at least one-quarter of the total number of beneficiary securities outstanding. Regulators see that structure as difficult to use when markets move quickly.
Proposal draws on recent Hong Kong guidance
The draft amendment is expected to reference guidance issued on the 24th of last month by Hong Kong’s Securities and Futures Commission. That guidance allows asset managers, after setting and disclosing standards in advance and based on their operational capacity, to adjust the multiples of leveraged and inverse products. It also places a time limit on the measures, and the multiples may only be reduced, not increased.
Investment caps and paper trading are also under review
At the same time, South Korean authorities are considering a leverage investment cap under which only about 20% of an investor’s total investment quota could be allocated to leveraged products. They are also reviewing a mandatory simulated trading requirement aimed at investors with larger transaction amounts as a way to move risk controls earlier in the process.
Margin requirement has already been raised
Separately, the base margin requirement was increased on July 31 from KRW 10 million to KRW 30 million. Authorities said there is still room to raise it further depending on market conditions.
FSC chair comments on the balance between speed and investor protection
At a full session of the National Assembly’s Political Affairs Committee on the 29th of last month, the chair of South Korea’s Financial Services Commission said, “Lowering the multiple is expected to be effective in easing volatility, but how to balance beneficiaries’ meetings and investor interests will be considered carefully during the legislative revision process.”
Based on the measures now under discussion, South Korea’s framework for leveraged ETF oversight is shifting from after-the-fact fixes toward a structure that combines preventive controls with emergency intervention.