South Korea's Financial Services Commission will implement stricter deposit requirements for single-stock leveraged exchange-traded funds (ETFs) and exchange-traded notes (ETNs) starting January 31. Individual investors must hold cash deposits of 30 million won or more to purchase or add to positions in single-stock leveraged products, up from the current 10 million won requirement that accepts collateral securities. The accelerated timeline follows President Lee Jae-myung's January 21 directive for swift action on supplementary measures for single-stock leveraged products. The regulation applies to domestic-listed products based on Samsung Electronics and SK Hynix, as well as overseas single-stock leveraged ETFs/ETNs including Tesla and NVIDIA. Authorities have suspended new listings and banned advertising for these products since January 16.
Financial Services Commission Raises Deposit Requirement to 30 Million Won Cash-Only
The Financial Services Commission announced on January 24 that enhanced deposit requirements for single-stock leveraged products will take effect January 31. Currently, individual retail investors must maintain deposits of 10 million won or more to purchase single-stock leveraged products, with collateral securities such as stocks, ETFs, and bonds valued at 70% of market price counting toward the requirement. Starting January 31, the base deposit increases to 30 million won and collateral securities will no longer be recognized. Investors must hold 30 million won or more in cash only to make new purchases or add to existing positions in single-stock leveraged products.
Implementation Accelerated to January 31 from Originally Planned February Dates
Financial authorities originally planned to implement the deposit increase around February 5 and eliminate collateral security recognition around February 19. The commission coordinated with the financial investment industry on system development schedules and moved both measures to the end of January. Securities firms that fail to complete related system development by January 31 will be recommended to restrict handling of new transactions in single-stock leveraged products. The early implementation follows President Lee Jae-myung's January 21 instruction at a cabinet meeting to "take necessary response measures swiftly and boldly" regarding single-stock leveraged supplement measures.
Regulation Applies to Samsung Electronics, SK Hynix, Tesla, NVIDIA Products
The strengthened standards apply equally to domestic-listed products with Samsung Electronics and SK Hynix as underlying assets, as well as single-stock leveraged ETFs and ETNs listed on overseas markets including Tesla and NVIDIA. Existing investors must also meet the 30 million won cash requirement when making additional purchases of held positions. However, base deposit restrictions do not apply to selling held products. The Financial Services Commission emphasized that "while selling is possible regardless of base deposits, existing investors need to make decisions carefully as it may affect investment strategies."
Cash Recognition Standards Tightened to Settlement Date
Cash recognition standards are being strengthened. Currently, when investors sell held stocks, the sale proceeds are immediately recognized as cash deposits on the same day. Going forward, proceeds will only be recognized as base deposits on the settlement date (T+2) when cash is actually deposited after settlement completion. Loan amounts secured by sale proceeds are excluded from base deposits. Deposit requirement waivers for investors with accumulated trading experience are prohibited. Currently, securities firms typically can lower deposit requirements after three months of trading start considering investor trading experience, but going forward only additional strengthening of deposit standards will be permitted.
Additional Regulatory Measures in Effect and Planned
Financial authorities have implemented a temporary suspension of new listings and advertising ban since January 16. Measures to strengthen liquidity provider (LP) tracking error management obligations from the current 3% to 2% and increase related penalties are scheduled for implementation on February 19. Authorities are discussing advancing the expansion of minimum trading quantity from 1 account to 20 accounts ahead of the originally scheduled November implementation. The Financial Services Commission is reviewing additional supplementary measures. In recent discussions with major asset management company working-level staff, measures such as reducing the number of LPs for single-stock leveraged ETFs and widening bid-ask spreads to suppress new demand were discussed. The ruling party reportedly suggested lowering the leverage ratio from the current 2x to around 1.5x. However, Kim Yong-beom, Blue House policy chief, stated on January 22 that "swift implementation of announced measures is the top priority."
RealMeter Poll Shows 64.7% Negative View of Product Introduction
A poll released on January 24 showed public opinion evaluating the introduction of single-stock leveraged ETFs negatively outpaced positive evaluations. According to a RealMeter survey conducted on January 22 of 504 people aged 18 and older nationwide, 64.7% of respondents answered that introducing single-stock leveraged ETFs was a "wrong decision." In contrast, 19% responded it was a "good decision" and 17.4% responded "don't know." Regarding supplementary measures recently announced by financial authorities, 59.2% of respondents thought they were "not sufficient." As additional supplementary measures, respondents most frequently selected "limit on daily tradable transactions" at 24.1%, followed by "significant increase in base deposits" (22.2%) and "significant strengthening of minimum trading quantity units" (21.5%).
FAQ
What deposit amount do investors need to purchase single-stock leveraged ETFs starting January 31?
Starting January 31, individual investors must hold 30 million won or more in cash only in their accounts to purchase or add to positions in single-stock leveraged products. The previous requirement was 10 million won with collateral securities such as stocks and bonds counting at 70% of market value toward the deposit. The new regulation eliminates collateral security recognition and raises the cash-only requirement to 30 million won.
Which single-stock leveraged products are affected by the new deposit requirements?
The strengthened deposit standards apply to domestic-listed products with Samsung Electronics and SK Hynix as underlying assets, as well as single-stock leveraged ETFs and ETNs listed on overseas markets including Tesla and NVIDIA. The Financial Services Commission announced on January 24 that the regulation applies equally to all these products starting January 31.
Can existing investors sell their single-stock leveraged ETF holdings without meeting the new deposit requirements?
Existing investors can sell their held products without base deposit restrictions. However, they must meet the 30 million won cash requirement when making additional purchases of held positions. The Financial Services Commission emphasized that while selling is possible regardless of base deposits, existing investors need to make decisions carefully as the new requirements may affect investment strategies.
