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South Korea drafts Capital Markets Act changes for emergency market intervention

South Korea drafts Capital Markets Act changes for emergency market intervention

Regulators are seeking authority to cut leverage on single-stock ETFs during extreme volatility, after July turmoil exposed gaps in existing approval and rebalancing rules.

Fact Check
Multiple caller-supplied sources independently corroborate both components of the claim. The two BigGo English articles and the Chinese BlockBeats/PANews reports confirm the FSC and FSS are preparing a Capital Markets Act amendment establishing 'emergency action/intervention authority' to adjust leverage in single-stock leveraged ETFs during market turmoil. The BigGo STO article explicitly confirms the separate token securities sub-regulations due 'this month' setting operating standards (trading limits, pooling, distribution) ahead of the February 4 full implementation of the new STO regime under the Capital Markets Act and Electronic Securities Act amendments. This matches the claim's 'next February' and the event_time anchor of 2027-02. All key facts align across sources.
Summary

South Korea's Financial Services Commission and Financial Supervisory Service are drafting amendments to the Financial Investment Services and Capital Markets Act that would let regulators bypass beneficiary meetings and directly force reductions in the leverage of single-stock leveraged ETFs during severe market stress. The proposed emergency action authority would allow the current 2x products to be cut to 1.5x or even 1x, giving officials a faster way to curb destabilizing rebalancing flows when volatility surges. The move follows July's market crash, when retail-heavy buying of 2x single-stock ETFs tied to Samsung Electronics and SK Hynix amplified selling pressure as prices fell, contributing to repeated circuit breakers and a KOSPI monthly decline of more than 33%. Deputy Prime Minister and Minister of Economy and Finance Choi Sang-mok has already apologized, saying the initial system design lacked adequate risk controls. Regulators are looking at Hong Kong's flexible leverage framework as a reference, but South Korea's plan would give the state direct intervention powers rather than leaving leverage changes to fund managers. FSC Chairman Lee Bok-hyun said lowering leverage would likely help calm abnormal volatility, while acknowledging the need to balance investor rights with response speed. Officials are also weighing caps on leveraged investing, higher margin requirements and mandatory simulated trading for large traders. Analysts and market participants say the key question is whether the law will clearly define an emergency, because unpredictable intervention could undermine investor confidence even as it aims to reduce swings.

Terms & Concepts
  • single-stock leveraged ETFs: Exchange-traded funds designed to magnify the daily move of one underlying stock, usually through derivatives and borrowing.
  • beneficiary meeting: A vote of fund holders required under current law for major product changes such as altering ETF leverage.
  • emergency action authority: The proposed legal power for regulators to override normal approval procedures and rapidly cut ETF leverage during severe volatility.