Deputy Prime Minister and Minister of Economy and Finance Koo Yun-cheol presides over an emergency market situation review meeting at Government Complex Seoul in Jongno-gu, Seoul, on Wednesday. [Ministry of Economy and Finance via Yonhap]
Deputy Prime Minister and Minister of Economy and Finance Koo Yun-cheol presides over an emergency market situation review meeting at Government Complex Seoul in Jongno-gu, Seoul, on Wednesday. [Ministry of Economy and Finance via Yonhap]

Financial regulators, already under fire for turning the domestic stock market into what critics have called a casino, are moving faster following President Lee Jae-myung's call for additional remedial measures. But with shares of Samsung Electronics and SK Hynix having already collapsed to less than half their peak values and investor sentiment at rock bottom, questions are mounting over whether the new steps will have any real effect. The Financial Services Commission said Thursday it will implement additional safeguards for single-stock leveraged exchange-traded funds "as early as possible," following measures announced Wednesday.

The FSC released a document Thursday outlining specific tasks under the "additional measures for single-stock leveraged products" decided at an emergency interagency market review meeting Wednesday night, saying it would "swiftly draw up detailed plans centered on the agency responsible for each key task." Under the plan, the FSC and the Financial Supervisory Service will draft an amendment to the Capital Markets Act to establish a legal basis for financial authorities to take market stabilization measures in emergencies. The legal framework would cover not only single-stock leveraged products but a broad range of sectors and market participants.

The move draws on Hong Kong's recent experience with variable leverage ratios. Hong Kong's Securities and Futures Commission issued guidelines July 24 allowing asset managers to adjust the leverage ratios of listed leveraged and inverse products, subject to preset criteria and disclosure requirements based on each manager's operational capabilities. The FSC said the amendment is intended to allow it to "prepare and implement timely measures without separate legislative revisions when urgent situations arise that undermine market stability or investor protection."

Individual investment limits will be set by each brokerage firm on a per-account basis. The measure aims to prevent retail investors from concentrating the bulk of their assets in single-stock leveraged products and taking on excessive risk. The FSC cited 20 percent of total invested assets as an example of a possible cap.

By raising the basic deposit requirement to 30 million won in cash while also capping investment amounts, regulators expect to suppress demand from both ends. The FSC also plans to introduce an excessive-order surcharge — a concept already used in the futures market — for single-stock leveraged products, to address the problem of certain investors trading such products multiple times a day and artificially inflating order volumes and transaction activity.

However, the specific targets, methods and rates for the surcharge — which would add to trading costs — are to be finalized after consultations with the industry and relevant agencies. In addition, simulated trading will be made mandatory so that investors clearly understand the risks of single-stock leveraged products before committing funds, supplementing what the FSC described as the currently theory-heavy education with hands-on practice. Retail investors seeking to participate in the listed derivatives market are already required to complete simulated trading on top of prerequisite education. The FSC did not disclose a specific implementation date for the additional measures announced Wednesday night, saying most details would be finalized through discussions with relevant agencies and the industry before taking effect.


kty@heraldcorp.com