Government Takes Emergency Measures as Stock Market Plummets

As volatility in domestic and international stock markets increased following the U.S. midterm elections, the South Korean government has decided to exempt securities firms from the obligation to maintain a 140% collateral ratio for margin loans for three months. This measure aims to prevent forced selling due to plummeting stock prices, which could exacerbate market declines.

Deputy Prime Minister and Minister of Economy and Finance Lee Hyung-il convened an emergency market situation review meeting at the Government Seoul Complex on November 6 to discuss trends in domestic and international financial markets and potential responses. The meeting included Financial Services Commission Chairman Lee Ok-won, Financial Supervisory Service Governor Lee Chan-jin, and Bank of Korea Deputy Governor Kwon Min-soo.

This meeting was organized in response to the sharp decline in the domestic stock market amid global financial market turmoil following the U.S. midterm elections. The government and financial authorities had already held an emergency meeting on November 5 to assess the situation in domestic and international stock markets, marking two consecutive days of proactive measures.

Following the U.S. midterm elections, concerns over regulations affecting artificial intelligence (AI) data centers and a decline in global investor sentiment have contributed to significant fluctuations in the domestic stock market. On the morning of November 6, the KOSPI index fell by more than 8%, breaching the 5000 mark during trading. A circuit breaker was temporarily triggered, halting trading at one point.

Participants in the meeting noted that the recent drop in stock prices is influenced by uncertainties surrounding AI industry policies and a decline in global investor sentiment, indicating that the domestic market is overly reactive to external factors.

However, they also assessed that the fundamentals of the South Korean economy remain strong, with a projected economic growth rate in the mid-3% range, exports expected to reach $1 trillion, and corporate operating profits anticipated to exceed 900 trillion won. They agreed on the need to guard against excessive pessimism driven by undue anxiety.

To prevent forced selling from exacerbating market volatility due to the sharp decline in stock prices, the government will exempt securities firms from the obligation to maintain a 140% collateral ratio for margin loans for three months. This measure will take effect on November 9.

Margin loans allow investors to borrow money from securities firms to purchase stocks. If stock prices fall and the collateral ratio drops below a certain level, securities firms may forcibly liquidate investors' stocks, leading to forced selling. The government aims to alleviate the concentration of forced selling by temporarily exempting the collateral ratio requirement.

The government will continue to monitor trends in the global semiconductor industry and policies from major countries, as well as real-time assessments of domestic and international stock markets and capital flows.

Additionally, the government is prepared to implement further market stabilization measures if market volatility increases due to excessive anxiety and supply-demand imbalances.

Alongside these measures, the government will continue its policy efforts to fundamentally improve the domestic capital market's structure, enhancing corporate value and restoring trust in the capital markets.