South Korea Tightens Rules on Leveraged Products Amid Volatility Concerns

South Korea is tightening regulations on single-stock leveraged products, a move aimed at curbing speculative demand and preventing market instability. Starting July 31, investors will need a higher initial deposit of 30 million won for products linked to Samsung Electronics and SK Hynix. The Financial Services Commission also plans to introduce individual investment limits, potentially capping total investment at 20% of an account's value, with implementation expected by mid-August.

“

Individual investment limits will be introduced by limiting investment limits per account. We will introduce it as quickly as possible in consultation with related agencies.

These measures come amid concerns over the rapid price swings and speculative trading in leveraged products. The government hopes these steps will help manage investment scale and provide a psychological deterrent to excessive risk-taking. Lee Hyo-seop, a researcher at the Korea Capital Market Institute, noted that individual limits would positively aid in easing concentrated investment trends and signal the government's intent to manage investment size.

However, some industry insiders question whether these measures go far enough. "The single-stock leveraged products were introduced too hastily in the first place," commented one securities firm executive. "They don't change the inherent characteristics of leveraged products, so the structural problem of amplifying market volatility remains."

“

If individual investment limits are introduced, it will be a positive help in alleviating the concentration phenomenon. We can also expect a psychological effect in that the government signals that it will manage the investment scale to a certain level.

To address these structural issues, the government is also exploring a "flexible leverage" system, similar to Hong Kong's model, which would allow leverage ratios to be adjusted based on market conditions. This could lower leverage during periods of high volatility, though its implementation in South Korea would require amendments to the Capital Markets Act, a process expected to take time. While this might reduce the product's appeal by lowering potential leverage effects, it could help mitigate volatility during sharp market movements.

“

There is a side that the single-stock leveraged products were introduced too hastily in the first place. It does not change the inherent characteristics of leveraged products, so the structural problem of amplifying market volatility remains.