South Korea is moving to secure emergency powers that would allow authorities to lower leverage on single-stock leveraged products. Officials are also pursuing a plan to standardize per-account investment limits at 20% and require simulated trading.

The Financial Services Commission and the Financial Supervisory Service are preparing revisions to the Capital Markets Act to create a legal basis for market-stabilization measures in urgent situations, Yonhap News reported on Aug. 2.

The government has not set a separate deadline for the changes and aims to put the framework in place as quickly as possible.

The move is an extension of follow-up measures announced on July 16, including a higher minimum deposit requirement, and additional steps unveiled on July 30. The government is seeking to manage market volatility amplified by concentrated bets on global semiconductor stocks and the expansion of leveraged products.

Officials used Hong Kong's variable leverage regime as a reference in drafting the revision. Hong Kong's Securities and Futures Commission issued guidelines on July 24 allowing leverage adjustments for listed leveraged and inverse products. The rules require asset managers to set and disclose advance standards based on their operational capabilities.

Financial authorities plan to establish a basis for a flexible response without having to amend separate regulations each time. The main measure under review is reducing the leverage ratio on single-stock leveraged products, which currently stands at two times. Authorities are considering a framework that would allow the ratio to be lowered when urgent action is needed for market stability or investor protection.

FSC Chairman Lee Eok-won told a full session of the National Assembly's Political Affairs Committee on July 29 that lowering the ratio from two times would help ease volatility. He said the legislative process would also examine how to handle beneficiary meetings and investor-related issues.

Under current law, matters related to beneficiary interests may require approval at a beneficiary meeting. Because leverage adjustments are directly tied to returns, they could also fall under that process. Approval requires a majority of the voting rights of beneficiaries present, as well as at least one-quarter of all issued beneficiary certificates.

Financial authorities view those procedures as too cumbersome for a timely response. At a July 16 briefing on the first set of measures, Byeon Je-ho, director-general of the FSC's Capital Markets Bureau, said cutting a product launched with two-times leverage to 1.5 times would in practice require a beneficiary meeting, a process he described as harder than a shareholders' meeting.

Whether trading restrictions or trading suspensions will be included in the emergency measures is also in focus. The FSC revised the Capital Markets Act in April 2025 to allow orders restricting trading in financial investment products for as long as five years in cases involving unfair trading and illegal short selling. But that system applies to the entire stock market. Limiting regulation to only some stocks could draw criticism that such action does not fit the purpose of a comprehensive emergency power.

Since July 31, the minimum deposit requirement has been raised to 30 million won in cash from 10 million won. On the first day of implementation, trading value fell to about one-quarter of the previous day's level. Turnover in 16 single-stock leveraged products, including inverse products, totaled about 3 trillion won, down from 12.4 trillion won in the previous session. It reached 15 trillion won on July 29.

Han Gyeong-u, Hankyung.com reporter case@hankyung.com