A single-stock leveraged exchange-traded fund (ETF) that tracks a 2x rise in Samsung Electronics will be introduced in the domestic stock market. Authorities are also pushing to introduce a fully active ETF, dubbed a Korean version of an ARK ETF, in which managers can freely select holdings regardless of index moves.

The Financial Services Commission on Jan. 30 issued a legislative notice of revisions to the Enforcement Decree of the Financial Investment Services and Capital Markets Act and to the Financial Investment Business Regulations reflecting the plan.

The move is designed to resolve asymmetric regulation between domestically listed ETFs and overseas listed ETFs, achieve a "Korea premium" and prevent investors from shifting funds overseas.

Until now, domestic rules requiring diversification have made it impossible to launch ETFs based on a single stock. Overseas markets such as the United States and Hong Kong already trade a variety of single-stock ETFs, prompting domestic investors to turn to foreign products.

The FSC will revise the enforcement decree to allow the listing of single-stock ETFs using domestic blue-chip shares as underlying assets. Leverage will remain capped at up to 2x, as it is now, taking into account investor protection and global trends. Related products are expected to launch as early as the second quarter of this year.

Investor protection measures will also be significantly strengthened in line with the introduction of single-stock leveraged products. For investments in domestic and overseas leveraged ETFs and exchange-traded notes (ETNs), the current 1 hour of pre-investment education will be supplemented with an additional 1 hour of advanced training on "single-stock leverage".

Requirements for investing in overseas listed leveraged ETFs, which have been cited as a regulatory gap, will be tightened. Until now, a basic deposit of 10 million won was required only for investing in domestic leveraged products, but investors will also have to post the same 10 million won deposit to invest in overseas leveraged products. The change will apply immediately to new investors.

Authorities will also lay the groundwork for developing a range of dividend-focused products. They will support the launch of derivatives-based ETFs such as covered-call products by creating an options market with expiries every day, as in the United States.

To do so, weekly option expiries for the KOSPI200 and KOSDAQ150 indexes will be expanded from 2 times a week (Monday and Thursday) to 5 times a week (Monday to Friday). Weekly options based on individual stocks and ETFs will also be newly introduced so managers can deploy a range of strategies.

Authorities are also pushing to introduce a "fully active ETF" with no obligation to track an index. Active ETFs in the domestic market currently face a constraint requiring them to maintain a correlation coefficient of at least 0.7 with a benchmark index, making it difficult for fund managers to fully use their capabilities.

The FSC plans to abolish the requirement through an amendment to the Capital Markets Act, opening an active ETF market that allows freer management, as in the United States. The amendment bill is expected to be submitted to the National Assembly in the first half of this year.

An FSC official said the key was to raise the appeal of South Korea's capital market by aligning regulations with global standards. The official said the regulator would strengthen investor protection and convenience at the same time to reduce incentives for domestic funds to flow overseas.