South Korea will waive for three months the rule that requires securities firms to keep a 140% collateral ratio on margin loans, aiming to stop a wave of forced stock sales after the Kospi fell 8.52% to 4,924.61 shortly after the open on 6 November and triggered a circuit breaker. The exemption starts on 9 November.
Finance Minister Lee Hyoung-il chaired the joint market-monitoring meeting at the government complex in Seoul on 6 November to discuss the response. Financial Services Commission Chairman Lee Eok-won, Financial Supervisory Service Governor Lee Chan-jin and Bank of Korea Deputy Governor Kwon Min-soo attended, and the government said it will prepare additional measures that can be activated if volatility increases further.
MARGIN BORROWING WAS ALREADY UNDER WATCH
South Korea's financial regulator had already warned brokerages that it could impose additional rules if they failed to tighten their own controls, with leveraged stock investing still above 30 trillion won.
According to the Korea Financial Investment Association, the margin loan balance peaked at 38.63 trillion won on 24 June before falling to 30.15 trillion won, still well above the 27.42 trillion won recorded at the start of the year. The large brokerages had also voluntarily kept their outstanding credit extensions, including margin loans, within 90% of equity capital, below the legal ceiling of 100%.
HOW THE WAIVER WORKS
A forced sale happens when a brokerage sells shares bought with borrowed money after the collateral ratio falls below a set threshold. Lifting the 140% requirement is meant to prevent a wave of forced sales after a sharp market drop, and the government took similar steps in 2020 and 2021.
The relief has limits. Investors' losses and interest costs do not disappear, forced liquidations are not banned outright, and brokerages may still apply their own risk management standards and the terms of individual contracts.
TWO DAYS OF HEAVY SELLING
The Kospi had already closed 5.28% lower at 5,383.80 the day before, while the Kosdaq ended 5.11% lower at 678.41. The 20-minute halt on 6 November was the 11th circuit breaker on the Kospi this year and the 17th on record, and the index stood at 5,075 at 11 a.m.
Shares fell across sectors. Securities stocks dropped 9.35%, insurance 7.64% and financials 7.58%, and foreign investors were net sellers of 302 billion won while institutions were net buyers of 235.4 billion won.
Officials linked the fall to policy uncertainty, including concerns over regulation of artificial intelligence data centres, and weakening global investor sentiment; the Nasdaq Composite fell 5.52% on 5 November. They said the domestic market had reacted excessively to external shocks and that excessive pessimism should be avoided, citing growth in the mid-3% range this year, exports reaching US$1 trillion and forecasts of corporate operating profit above 900 trillion won.
THE TGB VIEW
The waiver matters to South Korea's banks as well as its brokers, because KB, Shinhan, Hana, Woori and NH NongHyup own securities subsidiaries alongside their banks. KB Financial Group ranks 66th in the TGB Bank Rankings with a 9.9% return on equity, one place ahead of Shinhan Financial Group at 8.6%, and financials fell 7.58% on 6 November. The test comes from 9 November: whether a three-month pause on the 140% ratio slows forced selling enough that the additional measures officials are preparing stay unused.
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