South Korea to Tighten Margin Rules for Single-Stock Leveraged ETFs

South Korea will raise margin requirements for investors buying single-stock leveraged exchange-traded funds, as regulators move to rein in demand for the recently introduced products. Financial Services Commission Chairman Lee Eogweon said on July 28 that authorities are prepared to consider further steps if interest in the ETFs remains elevated, noting that the products have been viewed as a contributor to heightened market volatility. A new rule taking effect this Friday lifts the minimum cash margin for investing in single-stock leveraged ETFs to 30 million Korean won (about $20,400). The government brought the implementation forward by several weeks, citing the need to stabilize markets and strengthen investor protection. Lee said regulators will first evaluate the impact of the higher margin requirement. "If demand does not cool sufficiently, we will also review and prepare additional measures in advance," he said. One option under consideration is a portfolio-level cap that would limit an investor's exposure to these ETFs to no more than 20% of total financial investment assets.