South Korea's financial authorities will review additional regulation, including setting per-investor limits, if demand for single-stock leveraged products does not cool even after existing supplementary measures take effect.

Financial Services Commission Chairman Lee Eok-won (이억원) said this on July 28 at a meeting with major securities firms and asset managers on single-stock leveraged products at the Korea Financial Investment Association in Yeongdeungpo district, Seoul.

Lee said the authorities will first check the effects of policies such as tougher basic deposits that take effect on July 31. He added that, if demand does not fall enough, they will review follow-up steps in advance, including further tightening investment requirements and setting per-investor limits.

One additional step discussed was limiting the share of single-stock leveraged products to within 20 percent of a person's total investment amount in financial investment products. It has not been decided and was presented as an example that could be reviewed depending on market conditions.

Options under review also include introducing pre-trade simulations, regular retraining and a requirement for prior investment experience.

The financial authorities earlier decided to raise the basic deposit for single-stock leveraged products to 30,000,000 won in cash from the current 10,000,000 won. Substitute securities such as stocks, exchange-traded funds (ETF) and bonds are excluded from the basic deposit calculation. Existing investors will also be subject to the tougher standard when they make additional purchases.

Lee asked asset managers to spread out the timing of rebalancing, or asset reallocation, which is concentrated just before the close. He judged that a rush of trading just before the close can amplify volatility in the underlying stock and trigger predictive trading by other investors.

He said moving or spreading rebalancing into intraday trading could increase uncertainty in fund returns and tracking error. The financial authorities viewed that reduced closing-price volatility and less predictive trading could lower product management risk over the long term.

Lee also told securities firms acting as liquidity providers (LP) to adjust the size and frequency of their quotes to cut unnecessary trading. Concerns were raised that in some single-stock leveraged products, more than 20 LPs participate per stock, with LP-to-LP trading and arbitrage inflating total turnover.

Lee said, "As the final person responsible for the financial market, I take seriously that recent market volatility is growing and investors' expectations for the capital market are being shaken." He added, "With market stability and investor protection as the top priorities, I will swiftly push ahead with supplementary measures for single-stock leveraged products."