"Finally Coming"... Samsung Electronics, SK hynix 2x Leveraged ETF to Be Listed on the 22nd of Next Month

A leveraged exchange-traded fund (ETF) that seeks to deliver twice the rate of return of Samsung Electronics and SK hynix stock price gains is set to be listed as early as May 22.

On April 21, the Financial Services Commission announced at a cabinet meeting that an amendment to the Enforcement Decree of the Financial Investment Services and Capital Markets Act, which allows the introduction of ETFs based on a single underlying stock in order to address the asymmetrical regulations between ETFs listed domestically and those listed overseas, has been approved. The revised law is scheduled to be promulgated and take effect on April 28.

As a result, after the prospectus filing and listing review, single-stock leveraged ETF products will be listed as early as the 22nd of next month. The financial authorities will also apply enhanced investor protection measures compared to general ETFs.

Unlike in the United States and Hong Kong, the launch of single-stock ETFs or ETNs has not been possible in Korea due to requirements for portfolio diversification. Consequently, there have been ongoing concerns that domestic investors have been unable to satisfy their demand for a wider variety of ETF products.

In response, the financial authorities will raise the per-stock management limit from the current 30% to 100% and eliminate the diversification requirement. In addition, they will allow the risk assessment value from price fluctuations in the same stock to be up to 200% of total assets, and the management of the fund will be linked to changes in the underlying asset's index or price.

As of the first quarter of this year, the only domestic blue-chip stocks that meet the requirements of at least 10% market capitalization, at least 5% trading volume, and an eligible investment grade, as stipulated by the Financial Investment Business Regulations Enforcement Rules, are Samsung Electronics and SK hynix. Product types include leveraged and inverse products within ±2 times the underlying asset price, as well as covered call ETFs that pay out option premiums as dividends.

In addition, the financial authorities have amended the Korea Exchange derivatives market regulations to enable the development of a wider range of ETF products. Previously, only equity index options were allowed as weekly options products, but now weekly options based on single stocks and ETFs can also be introduced. Weekly options on individual stocks will be listed for the first time on June 29, while weekly options on ETFs are scheduled to be listed in the second half of the year.

Weekly options products based on the KOSPI200 and KOSDAQ150 indices, as well as monthly options on ETFs, both of which expire Monday through Friday, are also scheduled for initial listing in the second half of the year. An official from the Financial Services Commission commented, "With these changes, it will become possible to launch a wider range of ETFs, such as covered call products that allow investors to regularly secure dividends based on domestic asset classes, thereby expanding investor options."

Given that the risk of leveraged products is higher than that of general ETFs, the financial authorities will further strengthen investor protection. In addition to the existing one-hour pre-investment education required for leveraged investing, investors will now be required to undergo an additional hour of advanced pre-investment education. The existing minimum deposit (10 million won) that previously applied only to domestically listed leveraged ETFs and ETNs will now also be required.

Furthermore, unlike standard ETFs, domestically listed single-stock leveraged ETFs will not be diversified, and so the use of the term "ETF" will be restricted, with product characteristics such as "single-stock" and "leveraged/inverse" required to be clearly indicated, so that investors are fully informed. The financial authorities will also closely examine whether the key risk factors and the possibility of loss are adequately reflected in the prospectus (investment guide).

An official from the Financial Services Commission emphasized, "Single-stock leveraged ETF products have unique price structures and risk factors compared to general products, so investors wishing to invest in single-stock leveraged ETFs should pay special attention to the leverage effect and negative compounding effect, and invest responsibly within their loss-bearing capacity."

This content was produced with the assistance of AI translation services.