Financial authorities push to raise leveraged ETF deposit requirement this month

Jul 24, 2026, 09:58 am

Amid ongoing stock market volatility driven by single-stock leveraged exchange-traded funds (ETFs), financial authorities have decided to implement related countermeasures earlier than originally anticipated. Financial authorities previously announced a response plan including raising basic deposit requirements for investors, increasing minimum trading unit sizes, and tightening tracking error limits for securities firms.

However, amidst criticisms from the industry that the regulatory impact would be limited, President Lee Jae-myung instructed additional supplementary measures alongside expedited implementation, prompting authorities to move with greater urgency. Among the regulatory measures announced by financial authorities, raising the basic deposit requirement is the fastest to execute. As it requires only revisions to Korea Exchange (KRX) detailed enforcement rules for immediate implementation, it is expected to be moved forward by about a week from its original schedule.

According to financial industry sources on July 23, the KRX has initiated procedures to execute the increase in basic deposit requirements (from the current 10 million won to 30 million won), originally scheduled for August 5, as quickly as possible. Implementation could take place as early as within this month.

A KRX official stated, "Raising the basic deposit requirement is a matter of adding to existing detailed rules. Since it can take effect after a public notice period followed by internal approval, we are rushing the process as much as possible."

The background behind the exchange swiftly pushing measures capable of early implementation stems from growing market concerns as well as President Lee's remarks. Previously, during a Cabinet meeting regarding single-stock leveraged ETFs, President Lee called for additional measures, instructing officials to "take necessary and prompt response measures boldly."

As single-stock leveraged ETFs launched on May 27 were identified as a primary cause of domestic stock market volatility, financial authorities drafted and announced supplementary measures within a month and a half. Along with raising basic deposit requirements, these include expanding mandatory preliminary education hours and increasing minimum trading unit sizes from the current 1 share to a tentative 20 shares. Other supplementary measures include tightening securities firms' tracking error management standards from the current 3 percent to 2 percent and improving procedures for designating investment warning securities. Implementing standards for tracking error management obligations and designation procedures for investment warning securities requires not only KRX detailed rule and regulation amendments, but also approval from the Securities and Futures Commission under the Financial Services Commission (FSC). Therefore, limitations remain in advancing these timeline dates.

Currently, the KRX is also pursuing simplified designation procedures for investment warning status regarding leveraged ETFs. Previously, designating investment warning status required a three-stage process: extraction, designation notice, and final designation. To enable rapid responses, a plan is underway allowing ETFs that repeatedly exceed twice the tracking error limit to be designated as investment warning securities through a condensed two-stage process.

The total market capitalization of the 16 single-stock leveraged ETFs listed on the domestic stock market expanded from 4.4 trillion won on their launch date of May 27 to 11.9 trillion won as of July 15. Trading volume also increased from 10.4 trillion won to 13 trillion won over the same period, with the turnover rate topping 100 percent. In particular, even on the first trading day following the announcement of supplementary measures by financial authorities, trading volume exceeded 12 trillion won, drawing continued criticism that regulatory impacts remain virtually negligible.

In response to public criticism, both financial authorities and the exchange are reportedly agreeing to rush forward with the fastest actionable measures first.

Meanwhile, additional supplementary measures are expected to emerge beyond current voluntary restrictions on leveraged product advertising and halts on new listings implemented by asset management companies. This comes as Financial Supervisory Service (FSS) Governor Lee Chan-jin remarked regarding leveraged ETF volatility that "we should have stopped it even if it meant throwing ourselves in front of it," coupled with growing loss scales among individual investors in leveraged ETFs. According to the FSC, retail investors account for 36.9 percent of investments in single-stock leveraged ETFs.

Yoon Seo-young

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