South Korea Tightens Rules on Single-Stock Leveraged ETFs, Raises Cash Requirement to KRW 30 Million from July 31

Key Takeaways

• South Korea will raise the minimum cash requirement for retail investors buying single-stock leveraged ETFs and ETNs from KRW 10 million to KRW 30 million, with the stricter rules taking effect on July 31, earlier than previously scheduled.
• Only cash deposits will qualify under the new framework. Stocks, ETFs, bonds, and other collateral assets will no longer count toward the minimum requirement.
• The rules apply to all domestic and overseas single-stock leveraged products, including those linked to Samsung Electronics, SK Hynix, Tesla, and Nvidia.

South Korea's financial regulators are tightening access to single-stock leveraged exchange-traded funds (ETFs) and exchange-traded notes (ETNs) after the market expanded rapidly in less than two months.

Under new measures announced by the Financial Services Commission (FSC) on Thursday, retail investors must hold at least KRW 30 million (around $21,600) in cash before purchasing single-stock leveraged products. The threshold was previously KRW 10 million, while non-cash collateral such as shares, ETFs, and bonds will no longer be accepted.

The stricter rules were originally planned to roll out in stages during August but will now take effect simultaneously on July 31.

Rules Cover Both Domestic and Overseas Leveraged Products

The revised requirements apply to every single-stock leveraged ETF and ETN listed in South Korea as well as products listed on overseas exchanges.

This includes leveraged funds tracking major Korean companies such as Samsung Electronics and SK Hynix, alongside overseas names including Tesla and Nvidia.

Existing investors will also need to meet the new KRW 30 million cash threshold before increasing their positions. However, selling existing holdings will not require investors to satisfy the minimum cash requirement.

Regulators also warned that securities firms unable to complete the necessary system upgrades before July 31 may be instructed to restrict new purchases of affected products.

Rapid Market Growth Prompted Earlier Implementation

The decision follows explosive growth in South Korea's single-stock leveraged ETF market.

The products were introduced on May 27 with 16 underlying stocks and a combined market capitalization of approximately KRW 4.4 trillion. By July 15, total market value had surged to KRW 11.9 trillion, representing growth of more than 170% in less than two months.

Average daily trading value also climbed sharply, increasing from KRW 10.4 trillion on the first trading day to approximately KRW 13 trillion by mid-July.

The FSC, together with the Financial Supervisory Service, the Korea Exchange, and the Korea Financial Investment Association, agreed to accelerate the implementation schedule in response to surging investor demand.

Cash Definition Becomes More Restrictive

The new framework also tightens how qualifying cash is calculated.

Currently, proceeds from stock sales can be counted toward the minimum deposit on the day the trade is executed. Under the revised rules, those proceeds will only qualify after settlement is completed on a T+2 basis, meaning cash will count only when the funds are actually received.

Loans secured against proceeds from stock sales will also be excluded from the minimum cash calculation.

In addition, securities firms will no longer be allowed to lower deposit requirements based on an investor's trading history after three months. Going forward, brokers may only maintain or increase the minimum requirement.

More Regulatory Measures Are Under Consideration

The higher cash threshold forms part of a broader regulatory campaign aimed at limiting risks associated with single-stock leveraged products.

South Korea has already suspended the launch of new leveraged products and prohibited related advertising from July 16. From August 19, regulators will tighten tracking error standards from 3% to 2% while increasing penalties for violations.

Authorities are also considering bringing forward plans to raise the minimum trading unit from one unit to 20 units.

Additional proposals under discussion include reducing the number of liquidity providers (LPs), widening bid-ask spreads, and lowering the maximum leverage ratio from 2x to around 1.5x, signaling that regulators may introduce further restrictions if speculative activity remains elevated.