South Korea Tightens Rules on Single-Stock Leveraged ETFs as Overheated Market Cools Significantly

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South Korea's financial regulatory authorities are discussing measures to raise the minimum trading unit for single-stock leveraged ETFs to 20 units, while allowing individual investors holding fewer than 20 units to sell their remaining positions through after-hours closing price trading.

According to the financial investment industry on the 5th, the Financial Services Commission plans to announce detailed guidelines for this regulatory revision next month.

This is a follow-up implementation arrangement to the commission's July policy package, which proposed raising the trading unit to 20 units in order to curb speculative trading in single-stock leveraged ETFs.

Once the minimum trading unit is raised to 20 units, investors holding 1 to 19 units will be unable to sell during regular trading hours.

As a remedy, regulators are considering allowing investors to sell odd lots of fewer than 20 units through the after-hours closing price trading system within a specified period.

Regular trading currently closes at 15:30, and the after-hours closing price trading session runs from 15:40 to 16:00.

Once this mechanism is implemented, investors can sell fewer than 20 units of single-stock leveraged ETFs at the day's closing price.

However, the after-hours closing price trading price is fixed at the day's closing price, which presents limitations compared to intraday trading.

Therefore, regulators may set a buffer period of several months before implementing the new rules, ensuring investors are fully aware of the policy and can liquidate their positions on their own.

Even after the after-hours odd-lot trading window closes, investors can still apply to have securities firms directly repurchase their remaining shares to complete liquidation.

Since regulators introduced this institutional adjustment, the previously overheated single-stock leveraged ETF market has shown signs of stabilizing.

The total market capitalization of 16 single-stock leveraged ETFs surged from 4.4 trillion won at listing on May 27 to 16.5 trillion won on June 25, but has recently fallen sharply and stabilized in the 6 trillion to 7 trillion won range.

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