No more all-in?
Financial watchdog eyes cap on leveraged bets.
The Financial Services Commission is considering limits and stricter investor rules for single-stock leveraged products as it moves to curb volatility and excessive trading.
Lee Eog-weon, the chairman of the Financial Services Commission, speaks at Yeouido, Yeongdeungpo District, western Seoul, on July 23.NEWS1
Financial regulators are preparing tougher restrictions on single-stock leveraged products, namely a cap on individual investment.
"We will first closely examine the effectiveness of the supplementary measures, such as the strengthened minimum deposit requirement that takes effect on [Friday]," Lee Eog-weon, the chairman of the Financial Services Commission (FSC) said during a meeting held at the Korea Financial Investment Association in Yeouido, Yeongdeungpo District, western Seoul, on Tuesday. “We'll be ready with additional measures if demand doesn't cool enough."
Specifically, one proposal under discussion would cap investment in single-stock leveraged products at 20 percent of an individual's total financial investment portfolio. For example, an investor with 100 million won ($69,000) invested in financial products can allocate up to 20 million won in single-stock leveraged products.
The FSC is also considering tougher eligibility requirements for investors. Proposed measures include introducing mandatory simulated trading for single-stock leveraged products, similar to requirements already in place for futures, derivatives and short selling. Regulators are also weighing mandatory refresher training at regular intervals and a minimum investment experience requirement.
Lee also urged asset managers to spread out the timing of rebalancing for single-stock leveraged products rather than concentrating it just before the market closes.
"Please spread out the timing of rebalancing since there are concerns that when rebalancing for single-stock leveraged products is concentrated just before the market closes, it amplifies market volatility," Lee said. "Moving rebalancing earlier in the trading session could increase uncertainty over fund returns and widen tracking error. But if it reduces volatility at the closing price and limits predictive trading by other investors, it could improve the stability of fund returns and reduce operational risk."
A smartphone screen displays gains in a single-stock leveraged product tied to SK hynix on a stock trading app on July 15.NEWS1
Lee also urged brokerage firms serving as liquidity providers (LPs) to make voluntary efforts to stabilize the market.
"There is a growing perception in the market that trading volumes have become excessive because more than 20 LPs are participating in a single-stock leveraged product, which increases transactions among LPs and expand arbitrage trading," he said. “Imposing uniform regulations on a market that changes in real time has its limits. Now is the time for an industry with the expertise to regulate liquidity on its own and make a concerted effort to stabilize the market.”
The Financial Supervisory Service building in Yeongdeungpo District, western SeoulYONHAP
The remarks suggest regulators want liquidity providers to curb unnecessary trading and reduce overall trading volumes by adjusting quote sizes, order volumes and order frequency within the bounds of managing tracking error.
The additional measures outlined by Lee go beyond the first round of supplementary measures announced by the FSC on July 16.
The earlier package temporarily suspended new listings and advertising for single-stock leveraged products while tripling the minimum cash deposit requirement to 30 million won from the previous 10 million won.
The higher deposit requirement, originally scheduled to take effect next month, has been moved up to Friday.
The first round measures also included regulation methods of larger minimum trading units, stricter assessments for mandatory investor education, an additional hour of training and tighter management of tracking error.
Financial regulators attend a meeting held at the Korea Financial Investment Association in Yeouido, Yeongdeungpo District, western Seoul, on July 28.FINANCIAL SERVICES COMMISSION
The meeting was attended by Lee; Whang Song-youp, chairman of the Korea Financial Investment Association; Hwang Seon-oh, senior deputy governor of the Financial Supervisory Service; Song Ki-myung, senior executive vice chairman of the Korea Exchange; and Kim Sei-wan, president of the Korea Capital Market Institute.
Representatives from major brokerage firms serving as LPs — Korea Investment & Securities, NH Investment & Securities and Kiwoom Securities — also attended, along with asset managers including Samsung Asset Management, Mirae Asset Global Investments, KB Asset Management and Shinhan Asset Management.
This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.
