The government will set individual investment limits on single-stock leverage products, which have been cited as a factor amplifying stock market volatility. It is also pushing measures to impose additional costs on excessive orders and trading and to mandate mock trading before actual investment. With Korea's stock market recently falling more sharply than major countries, led by semiconductor stocks, the government has moved to introduce additional regulations to block speculative concentration.
Deputy Prime Minister and Minister of Economy and Finance Koo Yun-cheol held an emergency market situation review meeting on the 29th at the Government Complex in Seoul, discussing the causes of expanded stock market volatility and response measures. The meeting was attended by Bank of Korea Governor Shin Hyun-song, Financial Services Commission Chairman Lee Eok-won, Financial Supervisory Service Governor Lee Chan-jin, and Ha Joon-kyung, Senior Presidential Secretary for Economic Growth.
The government pointed to intensifying competition in memory semiconductors from China and funding concerns among U.S. big tech firms as the backdrop for the recent sharp drop in stock prices. It also assessed that the decline was amplified as investor sentiment weakened during the correction process following steep prior gains, compounded by supply-demand instability.
However, the government diagnosed that the decline did not stem from a weakening of the domestic economy's fundamental strength. With continued strong exports of key items such as semiconductors, upward revisions to corporate earnings forecasts, and an expanding current account surplus, the assessment is that the economy's fundamentals remain solid. The government stressed the need to prevent excessive anxiety about the domestic stock market from spreading.
The government will first set individual investment limits on single-stock leverage products to manage the scale of investment. While specific limit levels have not yet been finalized, a plan to restrict investment in single-stock leverage products to within 20% of an individual's total investment amount was presented as an example.
To curb excessive orders and short-term trading, trading cost burdens will also be raised. A plan is being reviewed to apply the "excessive-order fee," which imposes costs when orders above a certain level are repeatedly submitted in the futures market, to single-stock leverage products as well. In addition to the current preliminary education, entry requirements will be strengthened so that investors must undergo a certain period of mock trading before actual investment.
The government will also establish a legal basis for financial authorities to flexibly adjust leverage ratios during sudden market changes. Referring to Hong Kong's operation of a "variable leverage" system that adjusts product leverage ratios according to market conditions, the government plans to revise the system so that authorities can take market stabilization measures in emergency situations.
The previously announced measure to strengthen basic deposits will take effect on the 31st. To make additional purchases of single-stock leverage products, investors must deposit a basic deposit of 30 million won in cash. This applies equally to additional purchases by existing investors, not just new investors. New listings of the products have already been provisionally suspended, and advertising has been banned. The trading unit will be provisionally expanded from the current one contract to 20 contracts in November.
The government raised its regulatory level based on the judgment that the concentration of funds into single-stock leverage products amplified recent stock market volatility. The KOSPI fell 5.72% on the 24th of this month, followed by 10.84% on the 28th and 5.98% on the 29th. As of the 28th of this month, the KOSPI's decline compared with the end of June was 28.9%, larger than Japan (-11.0%), Taiwan (-9.8%), and China (-6.9%).
The government will maintain a joint 24-hour monitoring system among relevant agencies for the time being and will further analyze factors amplifying volatility. It also plans to swiftly push forward capital market restructuring tasks, including inducing listed companies to enhance corporate value and improve governance structures, and improving the fundamentals of the KOSDAQ market.
