From July 31, Investors Need $21,700 in Cash to Trade Samsung, SK Hynix Leveraged ETFs

South Korea’s Financial Services Commission said July 24 that it will move up the implementation of minimum deposit rules for single-stock leveraged exchange-traded funds to July 31 from Aug. 5.

The FSC on July 16 unveiled a supplementary plan to raise the minimum deposit for single-stock leveraged ETFs to 30 million won ($21,700) in cash only, from 10 million won. It also bars the use of substitute collateral such as stocks, ETFs and bonds, which had previously been counted at as much as 70% of market value toward the deposit requirement. The higher deposit had originally been due to take effect around Aug. 5 and the ban on substitute collateral around Aug. 19, reflecting the securities industry’s system-development schedule. After President Lee Jae-myung said at a Cabinet meeting on July 21, “Doesn’t this mean it will take far too long for the regulation to take effect?” the FSC sought ways with brokerages to bring forward the systems work.

The regulator will also tighten the rules for recognizing the cash minimum deposit. Under the new approach, proceeds from the sale of substitute collateral will not count toward the minimum deposit until the cash is actually credited. The change is meant to curb excessive round-trip trading, including selling securities and immediately buying them back the same day. Under the current system, substitute collateral sold on trade date, or T, is recognized immediately as equivalent to cash for minimum deposit purposes, allowing investors to buy single-stock leveraged products before settlement is completed and the cash arrives on T+2. For single-stock leveraged products, the FSC will now recognize cash as a deposit only on T+2, when the proceeds are actually credited. It also plans to exclude from the minimum deposit any amount borrowed against sale proceeds as collateral.

The FSC will also lower the threshold for liquidity providers’ duty to manage closing-price deviation ratios to 2% from 3%, effective Aug. 19. It also plans to discuss moving up a measure to raise the trading unit for single-stock leveraged products to 20 shares from one share, ahead of the original November timetable.

Shim Woo-il and Yang Ji-yoon, Hankyung.com reporters goodwill@hankyung.com