South Korea Plans Regulatory Overhaul: Introducing 'Emergency Deleveraging Power' – 2x ETFs Could Be Temporarily Reduced to 1x

According to recent foreign media reports, South Korea's Financial Services Commission (FSC) and Financial Supervisory Service (FSS) are jointly drafting an amendment to the 'Financial Investment Services and Capital Markets Act,' planning to introduce an 'emergency action authority' for the first time. This would empower regulators to bypass beneficiary meetings and directly reduce the tracking multiple of single-stock leveraged ETFs from the current 2x to 1.5x or 1x during periods of severe market volatility, providing a legal basis for rapid de-escalation in crisis situations.

Yonhap News Agency reported that this move directly targets the root cause of this summer's 'July Storm' in the Korean stock market. After South Korea approved 2x leveraged ETFs tracking daily performance of individual stocks such as Samsung Electronics and SK Hynix in May, retail investors flooded in, and mechanical rebalancing sell-offs amplified market swings during downturns. At the end of last month, both KOSPI and KOSDAQ triggered circuit breakers consecutively. Deputy Prime Minister Heo Won-seok publicly apologized, admitting that risks were not sufficiently assessed when the system was introduced.

In addition to emergency down-leveraging, regulators are simultaneously considering three additional safeguards: setting personal leverage investment limits (rumored to cap at 20% of total investment positions), raising the minimum margin requirement from 10 million to 30 million Korean won, and mandating simulation trading obligations for large-scale traders.

South Korea's regulatory approach is shifting from 'post-event appeals' to 'preemptive prevention + emergency intervention,' drawing inspiration from the Hong Kong Securities and Futures Commission's (SFC) flexible leverage framework announced on July 24, which allows reducing the target leverage of long-only products to 1.1x under extreme market conditions.

FSC Chairman Lee Il-joon stated during a National Assembly session that lowering the leverage multiple is 'expected to be effective' in mitigating volatility, but emphasized that the legal amendment must balance beneficiary rights with the speed of emergency response.

Industry insiders interpret that if the amendment passes, South Korea will become the second market in Asia, after Hong Kong, to include 'leverage multiples' in regulators' real-time adjustment toolkit. In the future, retail investors seeking to bet on semiconductor rebounds using single-stock 2x ETFs may face regulatory speed bumps, with leverage benefits potentially halved overnight.