South Korea to cap investment in single-stock leveraged ETFs, ministry says

South Korea is set to introduce new curbs on single-stock leveraged exchange-traded funds (ETFs) to stabilize its volatile stock market. The Ministry of Finance announced that these measures will include a cap limiting individual investment in such products to 20% of their total investment assets.

The government also plans to raise the cost of related trading, potentially through charges similar to those for excessive order submissions in the futures market. These actions follow sharp market swings, which authorities attribute, in part, to concentrated bets in single-stock leveraged products. The measures aim to curb excessive trading activity.

Additional safeguards include simulated trading requirements alongside existing investor education programs. South Korea is also preparing a legal framework for regulators to implement market stabilization measures during emergencies, drawing inspiration from frameworks like Hong Kong's flexible leverage system. Previously announced measures, such as raising the minimum cash deposit requirement to 30 million won ($20,646), will take effect on July 31.

South Korea had already halted new listings and banned advertising for single-stock products. The KOSPI index experienced significant drops, falling 5.98% on Wednesday after a 10.84% decline in the previous session. Financial authorities stated they will maintain round-the-clock market monitoring and utilize policy tools as needed.