ME News reports that on August 2 (UTC+8), South Korea’s financial regulators are advancing amendments to the Capital Markets Act, aiming to grant regulatory authorities “emergency intervention powers” to directly implement market-stabilizing measures during periods of severe market volatility. The Financial Services Commission (FSC) has already initiated legal revision efforts in coordination with the Financial Supervisory Service (FSS), with a primary focus on single-stock leveraged ETFs, which have been identified as amplifying market fluctuations during recent sharp declines. Proposed regulatory measures include adjusting leverage ratios and imposing investment caps. Currently, certain single-stock leveraged ETFs in South Korea employ up to 2x leverage. Regulators are considering whether to permit temporary reductions in leverage ratios during periods of abnormal market volatility, to mitigate risks arising from concentrated trading activity. This proposal draws inspiration from recent regulatory actions in Hong Kong, where the Securities and Futures Commission has previously authorized institutions meeting asset management, risk control, and disclosure standards to adjust the leverage ratios of listed leveraged and inverse products, thereby enabling dynamic market oversight. South Korean regulators argue that under the current framework, changes to product return structures may require approval from fund holder meetings, making it difficult to respond swiftly under extreme market conditions. Therefore, they plan to establish an emergency regulatory mechanism that can be activated without complex procedural requirements. Additionally, regulators are considering: imposing individual investment limits on single-stock leveraged ETFs, capping overall investment exposure at approximately 20% to prevent excessive capital concentration, and introducing real-time trading simulation systems to enhance investor understanding of leverage product risks. The regulators state that raising the initial margin requirement primarily raises the investment threshold, while imposing investment limits acts as a “cap” on capital inflow—both measures together forming a complementary risk control system. Previously, South Korea raised the minimum margin requirement for single-stock leveraged ETF investors from KRW 10 million to KRW 30 million effective July 31. Data shows that on the first day of implementation, trading volume for the 16 relevant leveraged ETFs totaled approximately KRW 3 trillion—about one-quarter of the KRW 12.4 trillion traded the previous day and roughly 80% lower than the KRW 15 trillion recorded on July 29. (Source: ODAILY)
South Korea Considers Emergency Powers to Regulate Leveraged ETFs Amid Market Volatility
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Summary
South Korea is moving to grant the Financial Services Commission emergency powers to regulate leverage trading in single-stock leveraged ETFs. The proposed amendment to the Capital Markets Act would allow regulators to adjust leverage ratios and impose investment limits during periods of extreme market volatility. The FSC cited Hong Kong’s model, where leverage can be modified under specific conditions. Earlier this year, South Korea raised the minimum margin requirement for these ETFs to KRW 30 million, which significantly reduced trading volumes. The measure aims to improve the risk-to-reward profile for retail investors exposed to highly volatile products.
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