South Korean Exchanges Eye Relaxing High-Risk ETF Rules to Attract Retail Investors

Background and Motivation

South Korea's main stock exchange is in talks with financial regulators about lifting restrictions on high-risk leveraged exchange-traded products (ETPs), aiming to draw retail investors back to the domestic market. Despite a 92% surge in the benchmark Kospi index over the past year, capital continues to flow overseas.

Details of Policy Discussions

According to the exchange CEO, current rules prohibit leveraged ETFs on individual stocks and funds offering triple or higher index leverage. However, officials are exploring a gradual easing of these constraints.

Market Trends and Challenges

Despite strong local market performance, retail investors remain drawn to US equities. Regulators cite massive outflows of domestic capital as a key factor behind the won's weakness against major currencies.

Looking Ahead

If implemented, these changes could inject new energy into South Korea's capital markets and boost the domestic exchange's appeal to individual investors. However, the move would also present challenges in maintaining an appropriate risk-return balance.