Authorities Plan to Overhaul Rules on CFD Trades while Restricting New Transactions for Three Months

The FSC, in collaboration with the FSS, the KRX, and the KOFIA, has announced a comprehensive set of regulatory measures to fortify the trading of CFDs. The measures were unveiled at a meeting held on 26 May 2023 and include:
1. Boosting Transparency: The authorities will enhance clarity around CFD investment information, with a focus on the real types of CFD investors and their investment balances. This initiative is aimed at rectifying the current misrepresentation of investment fund flows and will allow market participants to monitor the influx of leveraged investment funds effectively.
2. Preventing Regulatory Arbitrage: The FSC will close loopholes that allow for regulatory arbitrage by incorporating CFDs within the maximum credit extension limit of securities firms. This move will compel firms to manage their limits in line with their equity capital level.
3. Intensifying Identity Verification: The process of awarding the status of „qualified professional investor“ to individual investors will be fortified. This will include a requirement for an in-person (or video call) verification process. In addition, securities firms will be obliged to biennially confirm whether such investors maintain their qualifications.
4. Establishing a New Requirement for OTC Derivatives Transactions: A new verification process will be introduced for OTC derivatives products like CFDs. This process will ensure that only those investors with substantial investment experience and capability of handling high-risk investments can trade in such products.
In the interim period before the enforcement of these measures, the financial authorities recommend a temporary halt to new CFD transactions by qualified professional investors for the next three months. Once securities firms have established the required systems and internal control framework, they can resume new CFD transactions.
FSC Vice Chairman Kim So-young highlighted the urgency of these reforms to restore public trust and investor confidence that has been eroded due to recent unfair transactions in the capital market. He emphasized the need for the industry to actively promote these regulatory improvements and nurture sound investment practices.