South Korea tightens leverage ETF regulations: cash threshold raised to 30 million won, takes effect early on July 31.

South Korea tightens leverage ETF regulations: cash threshold raised to 30 million won, takes effect early on July 31.

South Korean regulators have significantly tightened the threshold for leveraged single-stock ETF trading, imposing stricter entry requirements for retail investors.

According to South Korea's "Daily Economic News," the Financial Services Commission issued a statement on July 24, announcing that the minimum deposit requirement for retail investors to purchase leveraged single-stock ETF and ETN products would be raised from 10 million won to 30 million won, and only cash will be recognized. Collateral securities such as stocks, ETFs, and bonds will no longer count toward the deposit balance. The two measures, originally scheduled for phased implementation in August, will now be merged and take effect simultaneously on July 31.

The new regulations apply to all leveraged single-stock products listed on both domestic and overseas exchanges in South Korea, including local products based on Samsung Electronics and SK Hynix, as well as overseas leveraged single-stock ETFs and ETNs based on Tesla, Nvidia, etc.

Reports indicate that existing investors must also meet the 30 million won cash requirement for additional purchases, but selling current holdings will not be subject to minimum deposit restrictions. For securities firms unable to complete system upgrades by July 31, regulators will recommend restricting new transactions of such products.

Early Implementation: Rapid Product Growth Triggers Regulatory Alert

The early implementation of regulatory measures was directly prompted by explosive growth in the market size of leveraged single-stock products over a short period.

It is reported that South Korean leveraged single-stock products were listed on May 27, initially covering 16 stocks with a total market value of 4.4 trillion won. By July 15, market value had ballooned to 11.9 trillion won—an increase of over 170% in less than two months. The average daily transaction volume also rose from 10.4 trillion won on the day of listing to 13 trillion won on July 15.

According to reports, in response to overwhelming investment demand, financial authorities coordinated with the industry on system development, merging the initially planned August 5 increase of the minimum deposit requirement and the August 19 removal of collateral securities recognition, to execute both measures early on July 31. The Financial Services Commission, Financial Supervisory Service, Korean Exchange, and Korea Financial Investment Association all participated in the decision.

Rule Details: Stricter Definition of Cash

Apart from raising the deposit threshold, the new regulations also impose stricter definitions on cash.

Under current rules, funds obtained from stock sales are immediately counted toward a cash deposit balance on the day of sale. After implementation of the new rules, such funds will only be recognized after settlement—meaning funds will count toward the deposit on the second trading day (T+2) after sale once they are actually received. Loans secured by sales proceeds will also be excluded from minimum deposit calculations.

Additionally, current rules allow securities firms to lower the deposit requirement after three months of trading, based on trading experience and other factors. After the new rules take effect, such relaxations will be explicitly prohibited. Securities firms will only be able to increase, not decrease, deposit requirements going forward.

Ongoing Strengthening: Multiple Additional Measures Underway

Raising the deposit threshold is not an isolated measure, but part of a series of tightening actions by South Korean regulators regarding leveraged single-stock products.

Financial regulators have already implemented temporary measures since July 16, including suspension of new product launches and bans on advertising. The tracking error management standard will be tightened from the current 3% to 2% starting August 19, with punitive measures for violations also strengthened. Additionally, the minimum trading unit will be raised from 1 to 20 units—a plan initially scheduled for November and now under discussion for early implementation.

Notably, several further demand-suppressing proposals are under discussion, including reducing the number of liquidity providers (LPs) for leveraged single-stock ETFs, widening bid-ask spreads, and lowering the current leverage ratio from 2 times to about 1.5 times.

The Financial Services Commission emphasized that existing investors must meet the new deposit requirement for additional purchases, and reminded investors to carefully consider the impact when formulating investment strategies.

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