South Korea's financial regulator warned investors to exercise caution over "perpetual futures" products based on Korean stocks that trade on offshore platforms such as overseas crypto exchanges, saying they fall outside investor protections under domestic law. The products carry a high risk of total loss of invested capital given their ultra-high-risk nature, the regulator said.
The Financial Services Commission issued an advisory on perpetual futures on the 16th, calling for considerable caution from domestic investors. The warning follows controversy over products recently launched by overseas crypto exchanges that allow investors to take positions in Samsung Electronics (005930.KS), SK hynix (000660.KS) and other stocks with leverage of 10 times or more, up to a maximum of 200 times.
Unlike conventional futures, perpetual futures have no expiration date, do not presume delivery of cash or assets at a specified future point, and trade around the clock year-round. Because the product type is new, supervisory frameworks have yet to be established in many countries.
The perpetual futures currently traded most widely are linked to price movements in the underlying asset by up to 200 times, meaning even a small move against an investor's position can trigger large losses quickly. Offshore crypto platform operators are also largely outside Korea's regulatory framework, unlike conventional derivatives, which are subject to entry requirements for business operators and investor protection systems under the Financial Investment Services and Capital Markets Act. That means investors trading through such platforms cannot expect protections comparable to those available in Korea's regulated financial system.
An FSC official said that if an offshore platform operator goes bankrupt, suspends operations, unilaterally halts trading, or is involved in system failures, financial incidents or disputes, legal remedies and redress procedures under Korean law are difficult to apply. The official added that supervisory authorities also have little ability to verify whether customer deposits are being properly protected and safeguarded.
The commission said it plans to closely monitor the rollout of products linked to the Korean stock market by offshore platform operators and the impact on the domestic market. It will respond firmly to any illegal business activity in Korea by such operators, including referring cases to investigative authorities.
The FSC official said the commission will do its utmost to protect domestic investors, including asking major offshore platform operators that currently support perpetual futures trading tied to the Korean market to cooperate in avoiding violations of domestic law. Whether to allow similar products in Korea, and how they would be regulated, will be reviewed carefully, taking into account the products' market impact, investor protection considerations and global policy discussions, the official said.