Korea raises cash deposit requirement for leveraged Samsung and SK hynix ETFs early
Korea will raise the minimum cash deposit for single-stock leveraged exchange-traded funds (ETFs) tracking Samsung Electronics and SK hynix to 30 million won on July 31, ahead of schedule.
The government will raise the minimum cash deposit required to invest in single-stock leveraged exchange-traded funds (ETFs) tracking Samsung Electronics and SK hynix earlier than initially scheduled.
The minimum cash deposit will be raised from 10 million won ($6,820) to 30 million won starting July 31, earlier than the initial Aug. 5 implementation date, according to the Financial Services Commission (FSC) on Friday.
The FSC announced a plan to raise the minimum deposit requirement on July 16. It also announced plans to exclude substitute deposits, including stocks, ETFs and bonds, which had previously been recognized at up to 70 percent of their market value when determining the requirement.
Although the deposit increase had initially been scheduled for Aug. 5, the ban on recognizing substitute securities as deposits had been set to take effect around Aug. 19, based on system development schedules in the financial industry. The implementation dates were moved forward thanks to cooperation from relevant agencies and financial investment firms in developing the necessary systems.
Starting July 31, investors will now need to hold more than 30 million won in cash alone to make new investments or additional purchases of single-stock leveraged products listed in Korea or overseas.
The government will also restrict brokerages from easing the minimum deposit requirement even after a certain period has passed following transactions. Currently, brokerages can adjust the deposit requirement after three months of trading based on factors including an investor’s trading experience.
The FSC will further refine the rules on recognizing cash deposits. Moving forward, proceeds from the sale of substitute securities will not be recognized as a cash deposit until they are deposited into an account. The move is intended to prevent excessive turnover trading, such as selling securities and immediately purchasing other securities on the same day.
Currently, substitute securities that are sold are immediately recognized as equivalent to cash on the trade date when calculating the minimum deposit requirement. This allows investors to purchase single-stock leveraged products before the sale proceeds are deposited after settlement is completed two business days later.
Under the revised system, sale proceeds will only be recognized as cash deposits for single-stock leveraged products on the day they are actually received.
The amount borrowed against securities sale proceeds as collateral will also be excluded from the minimum deposit requirement. Measures to strengthen tracking error controls will take effect on Aug. 19 after revisions to exchange rules and implementation guidelines.
The FSC also said it plans to discuss moving up the expansion of the trading unit for single-stock products to 20 shares, which is originally scheduled for November.
BY JEONG HYE-JEONG [lee.taehee2@joongang.co.kr]
