The government will triple the basic margin requirement for single-stock leveraged exchange-traded funds (ETFs) linked to Samsung Electronics and SK Hynix, which have been criticised for adding to volatility in the domestic stock market. It will also raise the minimum trading unit from 1 share to 20 shares.

The government on Wednesday afternoon held an emergency market situation review meeting, known as an F4 meeting, and announced supplementary measures for single-stock leveraged ETFs.

The meeting was attended by Deputy Prime Minister and Minister of Finance and Economy Koo Yun-cheol (구윤철), Bank of Korea Governor Shin Hyun-song (신현송), Financial Services Commission Chairman Lee Eok-won (이억원) and Financial Supervisory Service Governor Lee Chan-jin (이찬진).

The government decided to raise the basic margin for single-stock leveraged ETFs tied to Samsung Electronics and SK Hynix to 30 million won from 10 million won. The new standard is set to take effect on Aug. 5.

Basic margin is the minimum amount investors must hold in advance in a securities account to trade leveraged ETFs. The move aims to raise the entry barrier, reduce excessive leveraged trading and reshape the market around investors able to bear product risks.

The minimum trading unit will also be expanded to 20 shares from the current 1 share. The aim is to curb frequent short-term trades in small amounts and encourage investors to judge the product structure and risks more carefully.

Single-stock leveraged ETFs using Samsung Electronics and SK Hynix as underlying assets track twice the underlying stocks' daily returns. If the share price moves against expectations, losses are magnified, and in markets with repeated sharp rises and falls, losses can accumulate due to negative compounding effects.

In the recent swings in the domestic stock market, criticism has continued that rebalancing and hedging trades for those ETFs were concentrated near the close, increasing volatility in the underlying stocks.

The securities industry is also taking its own investor-protection steps ahead of the government measures.

KB Securities will end margin exemptions and discount benefits it has applied to domestic single-stock leveraged and inverse ETFs and exchange-traded notes (ETNs) from July 20.

Previously, depending on KB Star Club membership tier, a 10 million won margin applied to family customers and a 5 million won margin applied to best and grand customers, while VIP and VVIP customers were exempt from margin requirements.

Going forward, a 10 million won basic margin will apply to all customers regardless of membership tier. If the government raises it to 30 million won from Aug. 5, securities firms are expected to reflect the new standard as well.

A KB Securities official explained, "We pursued the change in basic margin requirements for domestic leveraged ETFs and ETNs to protect investors."

The Korea Financial Investment Association and the securities industry are also pursuing voluntary supplementary measures, including tailored risk warnings that consider an investor's age and portfolio, stronger investor education and dispersing the timing of rebalancing trades.

The government plans to review whether additional measures are needed by checking, after the system takes effect, the trading volume of single-stock leveraged ETFs, trading patterns by investor type and the impact on the underlying stock market.