South Korean authorities have allegedly adopted “emergency actions” to amend the Financial Investment Services and Capital Market Act to curb abnormal surges and crashes in the stock market caused by single-stock leveraged exchange-traded funds.
Sources in the South Korean financial sector revealed that the Financial Services Commission and the Financial Supervisory Service are drafting regulations to allow authorities to forcibly reduce the current leverage ratio of single-stock ETFs from the current two times to 1.5 times or lower, in the case where market volatility escalates.
This comes after concentrated bets in single-stock leveraged products exacerbated sharp swings in the local stock market.
It was reported that South Korean authorities are referencing the regulations of Securities and Futures Commission of Hong Kong, which allows asset management companies to adjust leverage ratios according to capabilities.
South Korean financial regulators had previously raised the basic margin requirements for related products from 10 million won (HK$55,000) to 30 million won, taking effect on July 31.
