Korea to cap proportion of single-stock leveraged ETFs in retail portfolios

Korea's financial authorities said Wednesday they will impose a cap on the proportion of single-stock leveraged exchange-traded funds (ETF) in individual investment portfolios and establish legal grounds for government intervention at times of extreme volatility as part of efforts to curb stock market volatility.

Finance Minister Koo Yun-cheol and the heads of other financial authorities discussed the measure during an emergency meeting, with one option discussed being to cap such ETFs at 20 percent of retail investors' portfolios, although no decision has been made on the threshold.

Authorities will establish a legal basis to allow regulators to take market stabilization measures in emergency situations, taking into account Hong Kong's flexible leverage ratio framework. They will also raise transaction costs to restrict excessive trading. 

The measures will take effect "immediately," the Finance Ministry said. 

“The participants shared the view that single-stock leveraged ETFs have contributed to stock market volatility, and vowed to come up with swift and bold countermeasures,” it added..

The Kospi nose-dived 5.98 percent to close at 5,663.24 on Wednesday after plunging to an intraday low of 5,262.77. Circuit breaker was triggered for the second consecutive day as chip stocks plummeted. 

BY JIN MIN-JI, YONHAP [jin.minji@joongang.co.kr]