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Hwang Sung-yeup, chairman of the Korea Financial Investment Association / Korea Financial Investment Association

The financial investment industry has decided to disperse rebalancing trades into intraday and post-market hours and reduce liquidity provider (LP) trading volume to prevent single-stock leveraged products from increasing the volatility of underlying assets.

The Korea Financial Investment Association announced on July 30 that it held an emergency meeting the previous day with CEOs of asset management companies operating single-stock leveraged products and LP executives at securities firms to discuss countermeasures for market stabilization and investor protection.

Attending the meeting were CEOs from KB, Mirae Asset, Samsung, Shinhan, Kiwoom, Hana, Korea Investment, and Hanwha Asset Management, as well as eight LP executives from securities firms.

The industry first agreed to spread out rebalancing trades, which have been concentrated near the closing price, across intraday trading and after market close. Because single-stock leveraged products adjust their asset holdings daily to track the multiple of the underlying asset's daily return, concentrating rebalancing trades near the market close risks exacerbating price volatility in the underlying assets.

Asset managers and LP securities firms plan to joint-respond to reduce trading volume and closely monitor the tracking error between market prices and net asset values, thereby minimizing the impact of product trading on the market. Furthermore, the industry agreed to actively cooperate so that government measures, such as raising minimum initial deposits and strengthening investor education—both set for early implementation on July 31—can smoothly settle in the market.

The Korea Financial Investment Association and the industry plan to monitor the implementation and effectiveness of these self-regulatory measures while continuously tracking market trends, including retail trading volume and market volatility. They also agreed to discuss additional countermeasures with the government and relevant authorities depending on future market conditions.

Single-stock leveraged products were introduced in May to resolve regulatory disparities between domestic and foreign markets and expand options for investors. While credited with redirecting a portion of overseas-bound investment demand into the domestic institutional market, criticisms arose that retail trading became heavily concentrated in specific stocks like Samsung Electronics and SK Hynix, thereby increasing overall market volatility.

Hwang Sung-yeup, chairman of the Korea Financial Investment Association, said, "The industry takes the recent expansion of market volatility and losses incurred by some investors very seriously," adding, "We will swiftly execute self-regulatory measures, including the dispersion of rebalancing trades and management of LP trading volume, while working closely with the government to do our utmost for market stabilization and investor protection."

                                                                                                                Kim So-ra