The Financial Services Authority is drastically trimming regulations related to contracts for difference (CFDs), which was cited as the backdrop for the "Société Générale (SG) Securities stock price crash."

In the future, as with credit loans, specific information will be provided on the balance of each stock, and CFD trading volume will also be included in the credit facility limit of the brokerage.

The Financial Services Commission, the Financial Supervisory Service, the Korea Exchange, and the Financial Investment Association held a meeting of related organizations on the 26th under the chairmanship of Financial Services Commission Vice Chairman Kim So-young, and finalized the 'CFD Regulation Supplementary Plan' containing these contents and announced it today (29th).

CFDs are over-the-counter derivative contracts that do not directly hold an underlying asset such as a stock, but only settle the difference for price changes.

In this supplementary measure, the Financial Services Authority first required that the type of actual investor be indicated when buying and selling stocks under CFDs.

Although 96.5% of the actual investors in CFDs are individuals, it has been pointed out that the brokerage companies that submit stock purchase orders are institutions if they are domestic companies, and foreigners if they are foreign companies, and investor information is aggregated, causing confusion about the trading entity and being used for unfair transactions.

At the same time, the financial authorities published the entire CFD and the balance of each individual stock as an investment reference indicator, so that market participants could check how much leveraged investment funds had flowed in.

CFDs are similar to credit loans in that they allow leveraged investments by paying 40% margin, but unlike credit loans, the remaining amount of purchases for each stock is not disclosed and is not included in the credit facility limit of the brokerage company.

It also eliminates regulatory arbitrage between CFDs and credit loans.

CFDs were included in the brokerage's credit limit, which was only applicable to credit loans, so that the entire limit was managed within the size of its equity.

We have decided to establish "Model Standards for CFD Handling," including CFD brokerage and counter-trading standards, and to restrict CFD handling for low-liquidity stocks.

CFDs have been classified as over-the-counter derivatives and have been exempt from credit limit limits or industry risk management best practices.

As a result, it has been pointed out that it has been used to invest in low-liquidity stocks, which has increased stock price volatility and adversely affected the health of securities companies as well as investors.

The authorities believe that CFD sellers have similar interests to short-selling investors, and plan to submit to the National Assembly in the third quarter an amendment to the Capital Markets Act that would impose balance reporting obligations and restrictions on participation in rights issuers as well as short sellers.

The authorities also plan to significantly tighten procedures related to the designation of individual investors and OTC derivatives trading.

Until now, applications for individual professional investors and confirmation of whether they meet the requirements have been mainly non-face-to-face, but in the future, face-to-face verification will be mandatory.

Brokerage firms are obliged to check every two years to ensure that the requirements for professional investors are consistently met.

All solicitations to induce the designation of individual professional investors, such as the provision of incentives by securities firms, are also completely prohibited.

Until now, if you were designated as an individual professional investor, you could invest in CFDs without any special conditions, but in the future, even if you are an individual professional investor, if you do not have sufficient investment experience in high-risk products such as stocks, derivatives, and high-risk derivative-linked securities (average balance of 300 million won or more at the end of the month for more than one year within the last 5 years), investment in OTC derivatives such as CFDs will be restricted.

In August, the Financial Services Authority decided to implement the regulatory supplementary measures announced on the day through amendments to the Enforcement Bylaws of the Exchange Business Regulations, amendments to the Gold Investment Industry Regulations, and changes to the computer, and recommended that retail professional investors restrict new CFD trading for the remaining three months until implementation.

After that, we plan to resume trading new CFDs from brokerage firms that have improved their systems and internal control systems.