Strengthened Investor Protection Measures to Take Effect from August 19 for Single-Stock Leveraged Products

The Financial Services Commission announced that a set of strengthened investor protection measures will take effect for single-stock leveraged (including inverse) products from August 19. As a follow-up to the previously announced measures (July 16 and July 29), the premium/discount rate (disparate ratio) management duty of securities firms will be strengthened and investors will need to complete a mock trading session before being able to invest in single-stock leveraged products from August 19.

(1) Strengthening the management of premium/discount rates

On August 12, the FSC approved a revision to the Korea Exchange (KRX)’s KOSPI market regulations bolstering securities firms’ premium/discount rate management duty on all exchange-traded funds (ETFs) and exchange-traded notes (ETNs) from the current level of 3 percent to 2 percent for domestically listed products and from the current level of 6 percent to 5 percent for overseas listed products.

Along this line, the KRX is currently working on updating its own rules to effectively restrict securities firms (liquidity providers) that are found to have intentionally or repeatedly failed to observe the premium/discount rate management duty from newly supplying liquidity in the market. In addition, the process for designating an item to be included in the investment watchlist will be streamlined from the current three-stage process to a two-stage process.

The strengthening of the premium/discount rate management duty is expected to help improve investor protection as there will be less chances that leveraged products are purchased at a higher price than the value of their underlying assets and sold at a lower price subsequently.

(2) Offering a mock trading session for single-stock leveraged products

The KRX will expand its mock trading service offering currently in place for futures and options traders and short-sellers for those investing in single-stock leveraged products (both domestically and overseas listed products).