(Aug 12): South Korea will require new investors in single-stock leveraged exchange-traded funds (ETFs) to undergo mock trading exercises, further tightening rules on highly risky products that have amplified market volatility. 

New investors in single-stock leveraged ETFs must complete at least five days of simulated trading totaling at least five hours, the Financial Services Commission said in a statement. The new requirement will apply to investments both locally and abroad from Aug 19.

The measure is the latest effort by authorities to curb retail access to leveraged ETFs after a rout wiped billions of dollars from investors’ holdings. Regulators earlier raised the minimum cash deposit for such trades to 30 million won (US$21,000 or RM86,667) and extended mandatory online training for new investors in single-stock leveraged products to three hours.

The regulatory restrictions followed criticism that leveraged products tied to chip giants Samsung Electronics Co and SK Hynix Inc had amplified swings in the benchmark Kospi Index. 

Trading of single-stock leveraged ETFs has declined since higher cash deposit requirements took effect on July 31. Turnover for such products fell to just 700 billion won on Aug 11, compared with 12.4 trillion won on July 30, according to the financial regulator. 

The new mock trading sessions will be available on Korea Exchange’s website free of charge. A similar requirement is in place for individuals seeking to trade derivatives or short-sell stocks.

Uploaded by Tham Yek Lee