The KOSPI and KOSDAQ closing figures are displayed on a monitor at Hana Bank’s dealing room in Jung-gu, Seoul, on Nov. 16, as the KOSPI once again fell below the 7,000 mark. Yonhap News
Korea’s financial authorities are tightening investment standards for single-stock leveraged exchange-traded funds (ETFs). Going forward, investors will need 30 million won in cash as a base deposit to trade single-stock leveraged ETFs, and products can only be bought and sold in units of 20 shares.
The Financial Services Commission (FSC), the Financial Supervisory Service (FSS) and the Korea Exchange (KRX) held a market situation review meeting on the 16th, chaired by Deputy Prime Minister for Economic Affairs Koo Yun-cheol, and announced supplementary measures for single-stock leveraged products centered on the above content.
First, the deposit required for investors to invest in single-stock leverage will rise from the existing 10 million won to 30 million won. Previously, 70% of the 10 million won could be covered by the value of held stocks, so in practice an investor could invest in single-stock leverage even with only 3 million won in cash. Going forward, however, an investor must have 30 million won in cash to invest in single-stock leverage.
The trading unit will be expanded to 20 shares. Currently, single-stock leveraged products are priced in the 10,000 to 20,000 won range, allowing investors to invest at a price cheaper than that of the underlying asset. But if trading is limited to units of 20 shares, it is expected to have the effect of reducing trading volume.
The deposit increase will take effect within next month. The change in trading units will be introduced in November this year, as it requires time for securities firms to develop their systems.
The management method for the disparity ratio will become more stringent. The disparity ratio is an indicator expressing as a percentage the difference between an ETF’s actual value, or net asset value (NAV), and the actual price traded in the market. The financial authorities will adjust the standard for securities firms’ disparity ratio management obligation from the current 3% to 2%. For asset managers that violate the appropriate disparity ratio, the authorities will review restrictions on the listing of new ETFs, while reducing the designation procedure for investment-caution stocks from the current three stages to two.
The training time investors must complete when investing in single-stock leveraged products will also increase from two hours to three hours. In addition, the new listing of single-stock leveraged products will be temporarily suspended until the market stabilizes. Advertising and marketing will be banned for products already being traded.
