Electronic display boards show Korea's market in Hana Bank's trading room in central Seoul on July 16. The Kospi tumbled 6.37 percent from the previous trading session.YONHAP
Korea is banning the launch of new single-stock leveraged exchange-traded funds (ETF) and raising the minimum required deposits by threefold to 30 million won ($20,300), financial regulators said on Thursday, after citing the products as one of the factors that could exacerbate volatility in the local stock market.
Korea will temporarily impose the ban and suspend promotional activities for the products “until market conditions stabilize,” financial regulators said in a joint statement.
As for investors, the minimum trading unit will increase to 20 from one to discourage trading. They will also be required to take an additional one-hour-long advanced training course on top of the existing two-hour-long mandatory education. Those who fail the mid-course assessment will be required to repeat the chapters of the course.
The regulatory measures arrived as the market fluctuated heavily following the launch of 16 single-stock leveraged and inverse products tied to Samsung Electronics and SK hynix on May 27. Since their introduction, 19 sidecars — market safeguards designed to temporarily halt trading during periods of extreme volatility — have been triggered, with a total of 37 activations this year, earning the market the nickname the “Roller Kospi.” The main bourse tumbled 6.37 percent on Thursday after it jumped 6.24 percent the previous day.
“It’s highly unusual to introduce safeguard measures a little more than a month after a product’s launch,” said Byun-je-ho, director general at the Financial Services Commission’s (FSC) Capital Market Bureau, in a press briefing at the government complex in central Seoul on Thursday.
“When the products were launched on May 27, semiconductor stocks were already experiencing heightened volatility. The two factors combined led to much more concentrated demand than had been expected, leaving us with little choice but to introduce safeguard measures to protect both the market and investors,” he added.
Financial regulators, including Finance Minister Koo Yun-cheol, second from right, pose for a photo as they held a meeting to discuss measures to prevent single-stock leveraged exchange-traded funds (ETFs) from expanding market volatility.NEWS1
The briefing was held after financial regulators, including Finance Minister Koo Yun-cheol and FSC Chairman Lee Eog-weon, held a meeting to review the market and the controversial products.
Other safeguards include requiring liquidity providers — typically brokerages that continuously quote buy and sell prices to facilitate ETF trading and keep market prices close to their net asset value — to tighten their tracking error threshold, reducing the maximum allowable price deviation for the products and their net asset value to 2 percent from the current 3 percent.
While the regulators unveiled a package of measures, they stressed that the volatility was not solely driven by single-stock leveraged ETFs, noting that similar swings had also been seen in other global chipmakers.
“This isn’t a phenomenon unique to Samsung Electronics or SK hynix,” the FSC said. “During the period of volatility, shares of other memory chipmakers, including Micron and Kioxia, experienced even greater volatility than SK hynix. The swings reflected global expectations and concerns over the semiconductor cycle.”
The FSC added that the launch of single-stock leveraged ETFs has helped stem capital outflows, as a wave of similar products linked to SK hynix is set to launch overseas following the chipmaker's American depositary receipt listing.
