South Korea will implement tighter regulations on single-stock leveraged products earlier than initially planned, moving the start date to July 31 after facing criticism that the original timeline was too slow.

Single-stock leveraged products — which amplify both gains and losses relative to their underlying shares — have drawn intensifying regulatory scrutiny in South Korea amid concerns about retail investor exposure to high-risk instruments.

The Financial Services Commission announced Friday that the stricter minimum deposit requirements, originally scheduled for August, would now take effect on July 31 to help stabilize demand for the products.

The FSC first unveiled the measures on July 16, raising the minimum cash deposit required to trade single-stock leveraged products from 10 million won to 30 million won ($20,500) — a threefold increase that significantly raises the barrier to entry. The regulator also decided to exclude substitute collateral — including stocks, exchange-traded funds, and bonds — from the deposit requirement. Under current rules, such assets are recognized at up to 70 percent of their market value.

The higher minimum deposit requirement had been set to take effect around August 5, while the exclusion of substitute collateral was due around August 19 to give brokerages time to upgrade their systems. The FSC said the accelerated timeline was achieved through cooperation with relevant agencies and the financial investment industry.

President Lee Jae Myung called for a faster rollout on Monday, telling a Cabinet meeting that the government should take "swift and bold" action rather than delay implementation.

Brokerages that fail to complete the required system upgrades by the deadline will be advised to suspend new transactions involving single-stock leveraged products.

Starting July 31, investors must maintain at least 30 million won in cash to make new investments or additional purchases of both domestically and overseas listed single-stock leveraged products.

Brokerages will also be prohibited from relaxing the minimum deposit requirement after a certain period. Under current practice, they are generally permitted to lower the requirement after roughly three months based on an investor's trading experience.

The FSC will additionally revise how cash deposits are counted toward the minimum deposit requirement. For single-stock leveraged products, proceeds from the sale of substitute collateral will not qualify as cash deposits until settlement is completed and the funds are credited to the investor's account.

Currently, investors can sell substitute collateral and use the proceeds to purchase single-stock leveraged products before settlement is completed, because the proceeds are recognized immediately for deposit purposes. Under the revised rules, proceeds will only be counted as cash deposits on the settlement date (T+2).

Loans secured by sale proceeds will also be excluded from the minimum deposit calculation.

Separately, measures to strengthen tracking error controls will take effect on August 19, following revisions to Korea Exchange regulations. Tighter tracking error controls are aimed at ensuring these products more accurately reflect the performance of their underlying assets, reducing discrepancies that can erode returns over time.

The FSC also said it would discuss bringing forward a separate measure to increase the minimum trading unit for single-stock leveraged products to 20 shares, from the current schedule of November.

The regulator said it will continue monitoring market conditions and the impact of the measures, and will consider additional steps if the market fails to stabilize.

Source: Korea Herald Business