May 22 launch planned for 2x leveraged products tied to Samsung Electronics and SK hynix, financial regulator says

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\r\n[Financial News] The government has finalized the introduction of single-stock leveraged exchange-traded funds based on blue-chip domestic stocks, moving to address the regulatory imbalance between locally listed products and those listed overseas. The revised rules will be promulgated and take effect on the 28th, and after securities filing reviews, products based on blue-chip names such as Samsung Electronics and SK hynix are expected to debut in the market as early as May 22. However, given the high-risk nature of these products, the use of the existing ETF label will be restricted, and a 10 million won base deposit and advanced investor education will be mandatory.
The Financial Services Commission said on the 21st that the State Council of South Korea approved a revision to the Enforcement Decree of the Financial Investment Services and Capital Markets Act, which provides the legal basis for introducing single-stock exchange-traded funds and ETNs.
Until now, domestic ETFs have been limited to a 30% cap on single-stock exposure because of diversification requirements. As a result, investors seeking two- to three-times exposure to individual names such as Nvidia or Tesla have increasingly turned to overseas markets.
Under the revision, the cap on managing securities in the same stock will be raised from 30% to 100%. If the stock-selection criteria under the Enforcement Bylaws of the Regulations on the Financial Investment Business are applied, such as a market capitalization share of at least 10% and trading volume share of at least 5%, Samsung Electronics and SK hynix will be the first underlying assets considered, based on the first quarter of this year. Product types will include plus or minus 2x leveraged products on a single stock, including inverse products, as well as covered call products.
Given the risks involved, the government will apply stronger investor protection measures than those used for ordinary ETFs. First, to make clear that these products differ from the core ETF principle of diversification, the use of 'ETF' in product names will be prohibited. Instead, the names will directly indicate features such as 'single stock' and 'leveraged/inverse.'
The government will also extend regulations that had applied only to domestically listed products to overseas-listed products, in order to ensure fairness. Going forward, investors in overseas-listed single-stock leveraged products will also have to complete a one-hour advanced pre-investment course and deposit a base amount of 10 million won. The measure is aimed at ensuring regulatory parity between domestic and overseas products while curbing high-risk investing.
The derivatives market will also be reorganized to support the development of a wider range of ETFs. Through revisions to the Korea Exchange (KRX) derivatives market rules, weekly options that had been allowed only for stock indices will be expanded to individual stocks and ETFs.
Accordingly, weekly options based on four blue-chip stocks — Samsung Electronics, SK hynix, Hyundai Motor and LG Energy Solution — are scheduled to be listed for the first time on June 29. In the second half of this year, the exchange will also push to list weekly options expiring every weekday, from Monday to Friday, on the KOSPI 200 Index and KOSDAQ 150 Index, as well as monthly options on ETFs.
A Financial Services Commission official said, "Because these products carry a much higher risk of loss than ordinary ETFs, we recommend that experienced investors who fully understand the negative compounding effect and leverage effect use them only for short-term investing."
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elikim@fnnews.com Kim Mi-hee Reporter