South Korea's Financial Services Commission and Financial Supervisory Service warned investors on October 16 about "perpetual futures" traded on overseas crypto exchanges and other offshore platforms. Perpetual futures are products linked to price movements in stock indexes, equities, crypto assets and other underlying markets without a maturity date. The regulators said that although the name resembles futures offered in South Korea's regulated market, the contract terms and trading and settlement structures differ.
The regulators said leverage, which enables positions larger than the amount invested, can reach 200 times. Even small price movements can therefore have a large impact on gains and losses, and positions may be forcibly liquidated if losses leave insufficient margin, or collateral needed to maintain the trade. They gave the example of a product offering 150-times exposure to a South Korean stock index, in which a move of about 0.66% in the opposite direction could trigger liquidation and wipe out the entire investment. The authorities said such products are not institutionally permitted in South Korea.
Transactions on offshore platforms are unlikely to receive the same investor protections available in South Korea's regulated market. The regulators said remedies under domestic law may be difficult when a platform becomes insolvent, suspends trading or suffers a systems failure, and supervisory authorities may be unable to verify whether deposited assets are properly safeguarded.
The regulators plan to monitor products linked to the South Korean stock market and their domestic impact. If they find violations of domestic law in activities that solicit South Korean residents through referral codes or receive commissions, they plan to respond with measures including referrals to investigative authorities. They will also ask major offshore platforms to cooperate in avoiding violations of South Korean law. The authorities said they will carefully consider whether to introduce similar domestic products and how to regulate them, taking into account market impact, investor protection and global discussions.