South Korea's Financial Services Commission and Financial Supervisory Service announced on July 24 that the basic deposit requirement for single-stock leveraged ETFs and ETNs will increase from 10 million won to 30 million won starting July 31, accelerating the implementation from the originally scheduled August 19 date. The regulatory tightening responds to persistent market volatility, with circuit breakers triggered on 4 out of 5 trading days last week despite prior measures announced on the 16th. The new rules apply to leveraged products tied to Samsung Electronics and SK Hynix, requiring cash-only deposits and disallowing substitute securities or margin loans against sale proceeds.
FSC Raises Basic Deposit to 30 Million Won Cash-Only Starting July 31
The Financial Services Commission stated in a July 24 press release that both the deposit increase to 30 million won (originally scheduled for August 5) and the elimination of substitute securities (originally scheduled for August 19) will take effect on July 31. Existing investors holding 10 million won in deposits must add 20 million won in cash to make additional purchases of SK Hynix or Samsung Electronics single-stock leveraged ETFs. An FSC official explained that "the strengthened system applies equally when existing investors make additional purchases, which may affect investment strategies" and noted that "existing investors also need to be careful in making investment decisions."
The basic deposit requirement excludes substitute securities such as stocks, ETFs, and bonds. While securities firms previously accepted substitute securities as basic deposits, only cash will be recognized starting July 31. For single-stock leveraged ETFs specifically, cash from securities sales will be recognized as deposits only after actual settlement (trading day + 2 days). This measure aims to prevent ultra-short-term trading where investors sell and immediately repurchase securities on the same day. Margin loans against sale proceeds before the T+2 settlement date will also not count toward the deposit requirement.
Authorities Implement Trading Unit Increase and Tracking Error Limits
Financial authorities plan to implement stricter tracking error management on August 19, tightening the allowable deviation between the underlying asset and ETF price from 3% to 2%. Securities firms and asset managers that fail to meet the standard will face restrictions on new liquidity provision (LP) activities and new ETF listings. Authorities also plan to accelerate the increase in minimum trading units from 1 share to 20 shares, originally scheduled for November. Raising the trading unit from approximately 20,000 won (1 share) to 400,000 won (20 shares) is designed to encourage more cautious trading by individual investors and discourage ultra-short-term trading.
An FSC official stated that "we will continuously monitor market conditions including the impact of supplementary measures" and added that "if the market does not stabilize, we will review additional supplementary measures after in-depth discussions with experts and investors." The accelerated implementation reflects ongoing concerns about the market impact of single-stock leveraged products, as trading volume in leveraged and inverse products remains high relative to overall market activity despite the measures announced on the 16th.
Market Analysts Expect Supply Stabilization from Regulatory Changes
Market observers anticipate that the leveraged ETF regulatory improvements will contribute to supply stability. Lee Jae-won, a researcher at Yuanta Securities, stated that "if foreign investors' spot and futures buying continues, the net buying entity could shift from individual investors centered on leverage to a healthier supply entity" and assessed that "leveraged ETF system improvements are also an expected factor in this week's stock market outlook."
FAQ
What deposit amount is required for single-stock leveraged ETFs starting July 31?
Starting July 31, investors must maintain a basic deposit of 30 million won in cash to trade single-stock leveraged ETFs or ETNs tied to Samsung Electronics and SK Hynix. The requirement increased from the previous 10 million won, and only cash deposits are accepted — substitute securities such as stocks, ETFs, or bonds are no longer recognized.
Why did South Korean authorities accelerate the implementation of stricter ETF rules?
Financial authorities accelerated the implementation from August 19 to July 31 because market volatility remained high despite prior measures announced on the 16th. Circuit breakers were triggered on 4 out of 5 trading days last week, and trading volume in single-stock leveraged and inverse products continued at elevated levels relative to overall market activity.
