South Korea imposed sweeping new restrictions on leveraged ETF and ETN trading Wednesday, requiring retail investors to complete five full days of simulated trading before accessing single-stock leveraged products. The rules take effect August 19 and cover both domestic and foreign-listed leveraged and inverse funds. Investors must now meet three conditions: maintain KRW 30 million in cash, complete three hours of education including advanced coursework, and finish the Korea Exchange simulation with sessions lasting at least one hour each. The simulation aims to demonstrate how daily-reset products lose value through negative compounding.
The cash-only requirement has already decimated trading activity. Daily turnover collapsed 94 percent from KRW 12.4 trillion on July 30 to just KRW 700 billion by August 11 after authorities raised the minimum threshold from KRW 10 million to KRW 30 million on July 31. The products saw KRW 1.4 trillion in net redemptions between August 4 and August 10. Securities firms can no longer lower requirements for experienced traders.
FXnCO Insight
Brokers serving Korean retail clients should prepare compliance systems immediately and expect continued sharp declines in leveraged product volumes through year-end.
Source: Finance Magnates