New single-stock leveraged ETFs halted; cash deposit raised to W30m, trades set in 20-share lots

Investors who want to trade single-stock leveraged ETFs will now need to hold 30 million won ($20,200) in cash as a basic deposit requirement. Trades in such products will also be permitted only in lots of 20 shares rather than one share at a time, a change expected to reduce overall trading volume.

Deputy Prime Minister and Minister of Economy and Finance Koo Yun-cheol chaired a market situation review meeting — known as the F4 meeting — Thursday at the Korea Federation of Banks building in Seoul, joined by the Bank of Korea, the Financial Services Commission and the Financial Supervisory Service.

Bank of Korea Governor Shin Hyun-song, FSC Chairman Lee Eok-won and Financial Supervisory Service Director General Lee Chan-jin attended the meeting.

Participants assessed that stock market volatility has persisted due to a combination of factors: profit-taking and portfolio rebalancing following a sharp run-up in share prices, diverging outlooks on the global AI industry and semiconductor sector conditions, and the Korean economy's heavy reliance on semiconductors.

The group agreed to develop and implement supplementary measures through inter-agency consultations, citing concerns that the rapid growth in market capitalization and trading volume of single-stock leveraged products — introduced to close asymmetric regulatory gaps with overseas markets and modernize the stock exchange — could amplify market volatility.

As a first step, the basic deposit requirement for investing in single-stock leveraged products will be raised from 10 million won to 30 million won.

Under the previous rules, 70 percent of the 10 million won deposit could be met with stock holdings, meaning an investor needed only about 7 million won in shares and 3 million won in cash. Going forward, the full 30 million won must be deposited in cash. In effect, the minimum cash requirement rises from 3 million won to 30 million won.

The minimum trading unit will also be provisionally raised to 20 shares. Single-stock leveraged products have typically been issued and traded at 10,000 to 20,000 won per share — lower than the price of underlying assets such as Samsung Electronics and SK hynix — making them accessible with a smaller outlay. Raising the minimum lot size to 20 shares is expected to reduce trading volume.

The higher deposit requirement is set to take effect in August, while the change to the minimum trading unit is scheduled for November to allow brokerage firms time to update their trading systems.

Regulators will also tighten oversight of tracking error, the gap — expressed as a percentage — between an ETF's net asset value and its market closing price.

The threshold at which brokerages are required to manage tracking error will be tightened from 3 percent to 2 percent, and regulators will consider restricting ETF managers that breach the acceptable range from listing new ETFs. The number of steps in the process for designating a product as a "Caution" investment will also be reduced from three to two.

Alongside these measures, the mandatory investor education requirement for single-stock leveraged products will be extended from two hours to three. The listing of new single-stock leveraged products will be suspended until markets stabilize, and advertising and marketing for products already in circulation will be banned.

Meanwhile, participants noted that financial markets showed a limited reaction following the Bank of Korea's Monetary Policy Board decision to raise the benchmark interest rate. They agreed to continue monitoring market conditions and to press ahead without delay on measures to ease the burden on vulnerable borrowers — including small and medium-sized enterprises, small business owners and low-income households — in response to rising interest rates.