The Financial Services Commission proposed capital market rules change to upgrade regulations on the domestic exchange-traded fund (ETF) market and help close the regulatory gap existing between domestically listed ETFs and overseas listed ETFs. The revision proposal for the Enforcement Decree of the Financial Investment Services and Capital Markets Act (FSCMA) and the regulation on financial investment businesses will enter a 40-day comment period from January 30 to March 11, 2026.
Due to the presence of regulatory gap existing between domestically listed ETFs and overseas listed ETFs (with overseas ETFs being subject to eased regulations in their jurisdictions), it has been pointed out that the domestic ETF market has not been able to sufficiently absorb the demand of investors for diverse types of ETFs. In this regard, an upgrade to relevant regulations is proposed to improve regulatory consistency with global standards and boost the competitiveness of domestic capital markets, while ensuring stronger protection and greater convenience for investors to encourage investments in the domestic market.
Key Revision Details
a) Introducing single-stock ETFs (same rules to be applied on ETNs)
In major overseas markets, such as the U.S. and Hong Kong, there are single-stock ETFs available for domestic investors to trade using mobile applications of domestic securities firms. However, in Korea, it is currently not possible to launch single-stock ETFs or single-stock ETNs due to the dispersed investment rule requiring ETFs to have at least ten (five for ETNs) underlying items with maximum 30 percent limit on each item.
In this regard, the FSC will seek to amend relevant rules to allow the listing of single-stock ETFs tracking blue-chip stocks in the domestic market. The revised rules will also apply to exchange-traded notes (ETNs) through an update to the Korea Exchange (KRX) rules.
Considering the need for investor protection and also overseas cases, leveraged ETFs and ETNs will be restricted within the current exposure level of 200 percent (2x). In the U.S., it remains restricted for new listing of leveraged ETFs that aim to deliver more than 200 percent, since after October 2020.
It is expected that relevant rules change and system development will be completed in the second quarter of this year to facilitate the launch of single-stock ETFs and ETNs.
b) Strengthening protection for leveraged ETFs (same rules to be applied on ETNs)
Since single-stock leveraged ETFs and ETNs carry higher risk than the leveraged ETFs and ETNs tracking multiple underlying stocks, there will be measures to strengthen investor protection, while ensuring the same level of protection for both domestically listed leveraged ETFs and ETNs and overseas listed leveraged ETFs and ETNs.
Currently, investing in domestically or overseas listed leveraged ETFs and ETNs requires an hour of prior learning session. To be eligible to invest in newly introduced single-stock leveraged ETFs and ETNs, prospective investors will be required to take an additional hour of intensive learning session prior to investing. This prior learning requirement will apply to both domestically and overseas listed single-stock leveraged ETFs and ETNs (to be effective for new investors).
Under the current system, the base deposit rate of KRW10 million for investing in domestically listed leveraged ETFs and ETNs does not apply to investors when investing in overseas listed leveraged ETFs and ETNs. To address this inconsistency in regulation, the same base deposit rate of KRW10 million will apply to investment in overseas listed leveraged ETFs and ETNs (to be effective for new investors).
Additionally, to make sure that investors clearly understand the fact that domestically listed single-stock leveraged ETFs are not designed for dispersed investment, these products will be required to clearly display “single-stock”—instead of “ETF”—on their products description.
These investor protection measures will take effect after making an update to the rules of the Korea Financial Investment Association (KOFIA) prior to launching single-stock leveraged ETFs and ETNs.
c) Facilitating the development of diverse types of ETFs including covered call ETFs
In the U.S., the presence of daily expiring options markets allows the launching of different types of ETF products employing diverse investment strategies. However, in the domestic market, despite the ongoing presence of investors’ demand for dividend-type ETFs, such as covered call ETFs, due to the restriction placed on the types and expirations of index and stock options, most of the domestically traded covered call ETFs (71 percent) track underlying assets in the U.S.
In this regard, the scope of domestically listed index and stock options and their expirations will be broadened up to facilitate the development of diverse types of ETF products. The current expirations (Monday and Thursday) for weekly options tracking KOSPI200 and KOSDAQ150 indices will be expanded to Monday through Friday. Additionally, weekly options tracking domestically listed individual stocks and monthly options and weekly options tracking domestically listed ETFs will be newly introduced.
An update will be made to relevant KRX rules in the first half of this year prior to introducing new options products.
d) Introducing active ETFs in the domestic market
In major markets, such as the U.S., actively managed ETFs (not bound to track indices) are commonly being introduced and traded in the market. However, since ETFs are defined as collective investment securities of exchange-traded funds, bound to track underlying prices or indices under the FSCMA, it remains unfeasible to have actively managed ETFs (that are not bound to track indices) in the domestic market.
In this regard, the FSC will seek to amend relevant rules in the FSCMA to introduce active ETFs in the domestic market. The FSC plans to promptly work on a revision bill for the introduction at the National Assembly in the first half of 2026.