The government announced a second set of supplementary measures just 14 days after introducing its first countermeasures targeting single-stock leverage ETFs (exchange-traded funds). The initial response was criticized for failing to quell market overheating, and with recent stock markets experiencing significant volatility, the move is seen as a preemptive response. The second package primarily includes measures to restrict investment demand, such as capping individual investment limits at 20% of total holdings and daily adjustments to leverage multipliers, leading analysts to suggest that single-stock leverage ETFs are effectively being phased out of the market.
According to relevant government agencies on the 30th, the government announced at yesterday's emergency market situation review meeting (F4) that it would implement the second supplementary measures for single-stock leverage ETFs. This comes just 14 days after the first package was unveiled on the 16th. Until the 24th, the official stance had been to observe the policy effects of raising basic deposit requirements, scheduled for early implementation on the 31st, before discussing additional measures. However, the government reversed its position in just six days.
The first set of measures faced criticism for failing to curb investment demand, while single-stock leverage ETFs were increasingly blamed for driving market volatility, prompting an accelerated push for a second package. Increased stock market volatility, including circuit breaker halts on trading for two consecutive days across both the KOSPI and KOSDAQ markets, also played a role. Lee Won-kyung, Chairman of the Financial Services Committee, and Lee Chan-jin, Chairman of the Financial Supervisory Service, who lead the financial regulatory authorities, ultimately apologized during yesterday's National Assembly Political Affairs Committee briefing, saying, "We sincerely apologize."
The second supplementary package proposes measures to further tighten investment demand and make trading more difficult. These include capping individual investment limits at 20% of total investment amounts, increasing transaction cost burdens (by applying excessive order burden fees in the futures market), introducing simulated trading, and establishing a legal basis for Hong Kong's variable leverage multiplier model.
For example, under the investment limit system: if an investor has 0.1 billion won in funds, they would be restricted to investing only 2 million won in single-stock leverage ETFs. Industry observers note that this approach "is expected to effectively reduce investment demand." The excessive order burden fee is a punitive charge applied in the futures market to prevent traders from repeatedly placing and canceling or correcting an excessive number of orders not intended for actual execution.
Adjustments to leverage multipliers follow a recent regulatory measure introduced by Hong Kong's financial authorities, allowing daily adjustments within a maximum range of ±2 times the existing cap. This means products previously expected to deliver 2x returns could see their leverage reduced to 1.5x or even 1x. However, under current South Korean law, such changes require approval through a beneficiary general meeting, necessitating legislative amendments. In addition to mandatory pre-trading education, the introduction of simulated trading is designed to allow investors to directly experience the risks associated with single-stock leverage ETFs.
A financial investment industry official stated, "Raising deposit requirements and capping individual investments at 20% will have a direct effect in curbing demand. If leverage multiplier adjustments become possible, investors seeking 2x returns will naturally exit the market."
Some opinions suggest that these strong demand-suppression measures amount to an effective market phase-out. Another industry official remarked, "Since delisting is not feasible, the government has resorted to measures that effectively block investment demand, marking a de facto phase-out of the market. It is regrettable that whenever negative side effects arise from certain products, stringent regulations are repeatedly imposed, leaving no room for the market's self-correcting mechanisms."
Concerns have also been raised about investor backlash and adverse effects such as the marginalization of retail investors, alongside fundamental questions over whether these measures can truly quell market volatility. An industry official noted, "Global markets are currently synchronized around semiconductor stocks; therefore, it is difficult to expect that reducing single-stock leverage ETF trading will ease volatility in South Korea's stock market."
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