South Korean regulators and exchange operators will tighten trading rules for single-stock leveraged exchange-traded funds and exchange-traded notes starting July 31, according to Yonhap News Agency. The Financial Services Commission, the Financial Supervisory Service and exchanges have decided to raise the minimum deposit requirement for these products from 10 million won, or about $51,000, to 30 million won, roughly $153,000. Only cash will be accepted going forward, while stocks, bonds and other securities will no longer qualify as collateral.
The new requirement will apply to related products listed both in South Korea and overseas. Existing investors who add to positions must also meet the rule, though sales will not be restricted. Proceeds from sales will count toward the deposit only after settlement is completed and two business days have passed, and loans backed by pending sale proceeds will not be counted.
The products were launched on May 27 and cover 16 underlying assets. Their initial market capitalization was about 4.4 trillion won, which had expanded to 11.9 trillion won by July 15. Daily trading value also rose from 10.4 trillion won on the first trading day to about 13 trillion won. South Korea had already suspended new listings and banned related advertising from July 16, while tightening discount-rate management standards from 3% to 2%.
South Korea's Financial Services Commission, the Financial Supervisory Service and exchange operators have decided to raise the minimum deposit requirement for single-stock leveraged exchange-traded funds and exchange-traded notes from 10 million won, about $51,000, to 30 million won, or roughly $153,000, starting July 31, according to Yonhap News Agency. Under the new rule, only cash will be accepted, and securities such as stocks and bonds will no longer qualify as collateral.
The measure will apply to related products listed both domestically and overseas. Existing investors will also have to meet the requirement when adding to positions, while selling will remain unrestricted. Funds from sales can only be counted toward the deposit two business days after settlement is completed. Loans secured by sale proceeds will not be included in the deposit calculation.
Product size expanded after launch
The products were launched on May 27 and involve 16 underlying assets, with an initial market capitalization of about 4.4 trillion won. As of July 15, that had grown to 11.9 trillion won. Daily trading value rose from 10.4 trillion won on the first day of trading to about 13 trillion won.
Earlier restrictions were already introduced
South Korea had already suspended new product listings and banned related advertising from July 16. Regulators also tightened the discount-rate management standard from 3% to 2%.
Market rumors say authorities are also considering reducing the number of liquidity providers, widening bid-ask spreads and lowering leverage from 2x to around 1.5x.
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