"A 2x Samsung Electronics ETF is coming"… Financial regulators set to overhaul ETF rules

South Korea’s Financial Services Commission (FSC) will allow leveraged exchange-traded funds (ETFs) that use domestic blue-chip single stocks—such as Samsung Electronics and SK hynix—as underlying assets. The move aims to open up ETF products that are listed overseas but have been blocked by domestic rules, in an effort to bring back investment demand that has been flowing abroad.

FSC Chairman Lee Eok-won said at a press briefing held at the Government Complex Seoul on the 28th that the regulator will “push ahead with leveraged ETFs based on a single domestic blue-chip stock,” adding that it plans to quickly issue a legislative notice for enforcement decrees and other subordinate regulations on the 30th.

Once the regulatory overhaul is completed, ETFs that track twice the daily return of individual stocks such as Samsung Electronics could be launched in the domestic market. Currently, ETFs in South Korea must hold at least 10 stocks, and the weighting of any single stock is capped at 30%—a structure that makes it impossible to launch single-stock leveraged products.

By contrast, overseas-listed ETFs in markets such as the U.S. and Hong Kong allow 2x leverage on individual stocks, often prompting Korean investors to shift to foreign markets. This has also been cited as a case of reverse discrimination against domestic asset managers. The FSC, however, said it will not allow 3x leveraged products, citing investor protection.

Alongside the introduction of leveraged ETFs, the FSC is also pushing to extend maturities for option-eligible products. Domestic options have short maturities, limiting the design of covered-call ETFs that generate income by selling options while holding stocks; longer maturities would make such structures feasible. This would effectively lay the groundwork for launching income-oriented ETFs in South Korea, including monthly dividend products that employ covered-call strategies.

The regulator will also begin institutional work to introduce active ETFs without index requirements. Currently, active ETFs in South Korea are restricted from deviating significantly from their benchmark index, making them little different from passive products. The FSC plans to ease the rules and allow active ETFs in which managers can adjust holdings and weightings at their discretion.

Park Ju-yeon grumpy_cat@hankyung.com