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The securities industry has decided to strengthen investor protection measures, including raising the base deposit requirement for single-stock leveraged products. It also plans to spread out trading timing so that rebalancing and hedging transactions do not concentrate at the closing price.
On the 14th, Korea Financial Investment Association Chairman Hwang Sung-yeop held an emergency meeting with the heads of 10 full-service investment firms in Yeouido, Seoul, to discuss market conditions and investor protection measures related to single-stock leveraged products. The meeting was attended by the heads of Daishin, Meritz, Mirae Asset, Samsung, Shinhan, Kiwoom, Hana, Korea Investment, KB, and NH Investment & Securities.
The participants agreed to strengthen the investor protection framework, including raising the base deposit requirement to prevent leveraged investments that exceed investors' capacity. Raising it from the current 10 million won to 50 million won is under discussion. They also decided to strengthen customized risk warnings and guidance considering investors' age and portfolios, and to enhance related education so investors can make investments only after fully understanding product structures and risks.
Securities firms have thus far disclosed product structures and risks, implemented risk warnings related to leveraged investment, and banned excessive advertising, promotion, and event-driven marketing. Nevertheless, since investment demand has been higher than expected following the products' launch, participants agreed on the need to further raise the level of investor protection at this meeting.
Supplementary measures are also being pursued to reduce the impact of single-stock leveraged products' rebalancing transactions on the underlying asset market. This reflects the judgment that it is necessary to strengthen the market stabilization function of liquidity providers (LPs) and to spread out the timing of rebalancing and hedging transactions. However, some argued that what affects the market is not the products' total trading value but the daily rebalancing volume. According to the Korea Capital Market Institute, the volume of stock trading required for daily rebalancing since the products' launch was estimated at between 700 billion and 2.1 trillion won.
The KOFIA and the securities industry plan to continuously monitor trading trends and investment behavior related to single-stock leveraged products and to actively cooperate with the government's additional measures. Chairman Hwang said, "Single-stock leveraged products can be a useful means of expanding investors' choices, but they equally demand a role from the industry for investor protection," adding, "We will strengthen each firm's investor protection efforts and, through institutional improvements, create a market environment that investors can trust."
