Individual investors will be required to undergo pre-training before trading new leveraged exchange-traded funds (ETFs) and exchange-traded notes (ETNs). Furthermore, those wishing to trade overseas on-exchange derivatives must complete pre-training and engage in simulated transactions.
The Financial Supervisory Service (FSS) and the Korea Financial Investment Association noted that they have prepared such measures to protect individual investors on the 25th. The goal is to revise the relevant regulations and enforcement rules of the Korea Financial Investment Association, and to establish pre-training and simulated transaction processes in collaboration with securities firms and futures companies, set to be implemented in December.
From then on, individual investors aiming to trade new overseas leveraged ETFs and ETNs must complete one hour of pre-training. After the training, they will receive a certification number which must be entered into the securities firm's home or mobile trading system (HTS/MTS) to enable transaction submissions.
To trade new overseas derivatives, individuals must undergo pre-training as well as engage in simulated transactions. Depending on the investor’s disposition and experience, the duration of the pre-training will range from one hour to a maximum of ten hours, while the simulated transaction time will vary from three hours to a maximum of seven hours.
The reason the financial authorities and the financial investment industry have established pre-training and simulated transactions is that aggressive overseas product trading has increased, raising concerns about potential losses.
The total transaction amount of individual investors in overseas derivatives (combined buying and selling) increased from 628.2 trillion won in 2020 to 1,607 trillion won in 2024, a growth of 1.7 times. However, individual investors have faced losses from overseas derivatives investment for the past five years. The annual loss last year was 38.99 billion won.
The transaction volume of overseas leveraged ETFs and ETNs also skyrocketed from 20.4 trillion won in 2020 to nearly 397.3 trillion won in 2024. During the same period, the number of trading accounts surged from 156,000 to 1,967,000. Despite concerns about losses due to increased market volatility, the financial authorities evaluate that individuals are excessively following the trading of leveraged ETFs and ETNs.
The FSS and the Korea Financial Investment Association expect that the introduction of pre-training and simulated transactions for overseas derivatives and leveraged ETFs and ETNs will help investors understand the products and recognize the risks, thereby fostering a sound investment culture. An official from the FSS said, "We will guide individual investors to ensure they have sufficient knowledge and simulated trading experience before investing in overseas derivatives and leveraged ETFs and ETNs."