South Korea's Financial Regulator Plans to Grant Emergency Intervention Powers to Limit Leverage ETF Multiples and Investment Amounts

The South Korean financial regulatory authorities are advancing amendments to the Capital Markets Act, intending to grant regulators emergency intervention powers to implement market stabilization measures during periods of severe stock market volatility. The Financial Services Commission and the Financial Supervisory Service have initiated relevant legal revisions, focusing on single-stock leveraged ETF products that are believed to amplify volatility. They plan to introduce regulatory measures such as adjusting leverage multiples and setting investment caps to reduce risks associated with concentrated trading. The regulators are also considering setting individual investment limits for single-stock leveraged ETFs, aiming to unify the investment cap at around 20% to prevent excessive concentration of funds. Additionally, a simulated trading system will be introduced to enhance investors' understanding of the risks associated with leveraged products. The increase in the basic margin requirement aims to raise the investment threshold, while the investment limit sets a cap on fund inflows, creating a complementary risk control system. Previously, South Korea raised the minimum margin requirement for investors in single-stock leveraged ETFs from 10 million won to 30 million won starting July 31. On the first day of the new regulations, the trading volume of 16 related leveraged ETFs was approximately 30 trillion won, only about a quarter of the 124 trillion won from the previous trading day, and a decrease of about 80% from the 150 trillion won level on July 29.