South Korea Advances Tightening of Single-Stock Leveraged ETF Trading: Retail Entry Threshold Triples, Korean Stocks Plunge 4.5%

Following overnight declines in U.S. markets, South Korea's financial authorities announced an early tightening of cash deposit requirements for single-stock leveraged ETFs, triggering heightened market risk aversion. On Friday, July 24, the Korean stock market opened lower and continued to decline, immediately breaking below the 7,000-point level. Losses rapidly widened to approximately 4.5%, with the index falling near the 6,700 level—just one day after a strong 4.4% rebound, highlighting extreme market volatility.

To curb overheated leveraged trading, the Financial Services Commission of Korea (FSC) announced on Friday that the minimum deposit threshold for retail investors buying single-stock leveraged ETFs and ETNs will be raised from 10 million KRW to 30 million KRW. Only cash will be accepted; collateral assets such as stocks, ETFs, and bonds will no longer be counted toward the requirement.

Two measures originally scheduled for phased implementation in August will now be merged and advanced to take effect simultaneously on July 31.

The new rules apply to all single-stock leveraged products listed on both Korean and overseas exchanges, including leveraged ETFs and ETNs tracking individual stocks such as Samsung Electronics, SK Hynix, Tesla, and NVIDIA.

Existing investors must also meet the 30 million KRW cash threshold to increase their positions, though selling existing holdings remains unrestricted. If brokerages fail to complete system upgrades by July 31, regulators will recommend restricting new transactions.

The primary reason for the accelerated tightening is the rapid expansion of single-stock leveraged products since their launch. Since their introduction on May 27, the market value of these products has surged from 4.4 trillion KRW to 11.9 trillion KRW by July 15—an increase of over 170% in less than two months. Daily average trading volume has also risen from 10.4 trillion KRW to 13 trillion KRW, prompting regulators to raise alarms over market overheating.

In addition to raising the threshold, the new rules also tighten the criteria for cash recognition. Proceeds from stock sales will only be counted toward the minimum deposit after T+2 settlement is completed. Related margin loans will also be excluded from calculations. Securities firms will no longer be allowed to reduce the minimum deposit requirement based on an investor’s experience.

Meanwhile, South Korea has already suspended the launch of new products and advertising since mid-July. Going forward, the authorities plan to tighten tracking error standards and consider reducing leverage multiples, indicating that regulatory pressure may continue to intensify.