South Korea's Democratic Party K-Capital Market Special Committee decided on the 27th not to lower the leverage ratio for single-stock leveraged products after consulting with financial investment industry representatives. Committee chairman Oh Gi-hyung stated that high-intensity measures such as delisting or leverage ratio adjustments are unnecessary, abandoning an earlier proposal to reduce the ratio from 2x to 1.5x. The decision reflects industry consensus that existing regulatory measures, including a deposit requirement increase to 30 million won, will sufficiently stabilize the market amid concerns that single-stock leveraged products have amplified stock market volatility.
Committee Abandons Leverage Ratio Reduction After Industry Consultation
The Democratic Party K-Capital Market Special Committee held a meeting with financial investment industry CEOs on the 27th at the Korea Financial Investment Association's 23rd-floor conference room. Oh Gi-hyung told reporters after the meeting that participants reached a consensus that high-intensity measures such as delisting or leverage ratio adjustments are not necessary. The committee had previously considered reducing the leverage ratio for single-stock products from 2x to 1.5x but reversed its position after hearing industry feedback that current measures provide sufficient expected effects.
Oh stated, "We agreed that we need to reduce the product characteristics of single-stock leveraged products and actively consider (ways to do so). At that point, I asked about ratio adjustment, but it's a matter that needs a bit more discussion." Kim Nam-geun, secretary of the K-Capital Market Special Committee, said, "We are not considering reducing the single-stock leverage ratio. The opinion of asset management companies and securities firms was that current measures can provide sufficient stability."
Attendees included Korea Financial Investment Association Chairman Hwang Sung-yeop and representatives from major securities firms and asset management companies. ETF working-level staff from asset management companies and liquidity provider (LP) personnel from securities firms also attended.
Deposit Requirement Increase Expected to Cut Trading Volume by 60%
Industry representatives at the meeting expressed the view that existing government supplementary measures will significantly reduce market impact from single-stock leveraged products. Kim stated, "If we raise the deposit to 30 million won, (leveraged investment accounts) will decrease from 100,000 to 10,000. Daily trading volume will decrease by about 60%, so it will bring considerable stability and reduce volatility."
The Financial Services Commission previously announced institutional supplementary measures including suspending new listings of single-stock leveraged products, raising deposit requirements to 30 million won, and expanding trading units. Kim added, "Full implementation will occur when government measures are implemented in August. If the deposit increase is insufficient after observing the situation, asset management companies and securities firms agreed to play an active role in autonomously informing about product risks."
Single-stock leveraged products launched 16 varieties based on Samsung Electronics and SK Hynix as underlying assets on May 27, and new launches are currently suspended.
Industry to Pursue Self-Regulation Over Delisting
The industry and K-Capital Market Special Committee conveyed their position that rather than announcing additional high-intensity measures, the industry will pursue self-regulation centered on already-announced supplementary measures. Kim stated, "Discussing delisting immediately would rather undermine trust in the stock market. We need to go in the direction of reducing the impact of high-volatility products by decreasing product characteristics."
He added, "We intend to find stability through self-regulation in the direction of not using the term ETF and not marketing with excessive exaggerated advertising." The meeting was arranged for the ruling party to directly inspect the current situation and gather opinions as criticism continued from inside and outside the market that single-stock leverage increased stock market volatility.
FAQ
What did South Korea's Democratic Party decide about single-stock leveraged products on the 27th?
The Democratic Party K-Capital Market Special Committee decided not to lower the leverage ratio for single-stock leveraged products from the current 2x level after consulting with financial investment industry representatives. Committee chairman Oh Gi-hyung stated that high-intensity measures such as delisting or leverage ratio adjustments are unnecessary, reversing an earlier proposal to reduce the ratio to 1.5x.
How will the deposit requirement increase affect single-stock leveraged product trading?
According to committee secretary Kim Nam-geun, raising the deposit requirement to 30 million won is expected to reduce leveraged investment accounts from 100,000 to 10,000 and decrease daily trading volume by approximately 60%. The industry and committee believe this measure will provide sufficient stability and reduce market volatility without requiring additional high-intensity regulations.
