Authorities said they would prepare additional stabilization measures should volatility increase, while closely monitoring excessive investor anxiety and imbalances in buying and selling.
The exemption, effective Nov. 9, will give brokerages greater flexibility in managing collateral requirements when falling share prices threaten to trigger forced liquidation of stocks purchased with borrowed funds.
While intended to prevent cascading selloffs, the measure could also leave leveraged investors and brokerages exposed to greater losses if share prices continue falling. It does not amount to a blanket ban on forced selling or an increase in borrowing limits.
The measure was announced following an emergency market meeting chaired by Deputy Prime Minister and Finance Minister Lee Hyoung-il, with Financial Services Commission Chairman Lee Eog-weon, Financial Supervisory Service Governor Lee Chan-jin and Bank of Korea (BOK) Deputy Governor Kwon Min-soo attending.
Kwon represented the central bank as BOK Governor Shin Hyun-song was scheduled to depart Friday for Basel, Switzerland, to attend meetings of the Bank for International Settlements (BIS) before returning on Nov. 11.
The KOSPI fell below 5,000 earlier Friday for the first time in about nine months. The plunge triggered a 20-minute marketwide trading halt, followed by a separate five-minute suspension of program sell orders after trading resumed.
The announcement helped turn institutional and retail investors into net buyers, propping the KOSPI back above the 5,000 mark.
Outstanding margin loans stood at 28.64 trillion won on Nov. 4, down 25.9 percent from their June 24 peak of 38.63 trillion won, according to the Korea Financial Investment Association.
Separately, forced sales linked to unsettled stock purchases totaled 3.9 billion won on Nov. 4, according to KOFIA. The figure predates Thursday’s and Friday’s selloffs and does not capture all forced liquidations of margin-financed positions.
Officials attributed the turmoil to a combination of policy uncertainty surrounding the artificial intelligence industry and weakening global investor sentiment, while assessing that South Korean stocks had reacted excessively to external developments.
They maintained that the country's economic fundamentals remained strong, citing projections for growth in the mid-3 percent range this year, annual exports reaching $1 trillion and corporate operating profits surpassing 900 trillion won.
Outstanding margin loans stood at 28.64 trillion won on Nov. 4, down 25.9 percent from their June 24 peak of 38.63 trillion won, according to the Korea Financial Investment Association.
Investor deposits fell faster over the same period, declining 34.7 percent to 89.23 trillion won. Margin loans consequently rose to the equivalent of 32.1 percent of investor deposits from 28.3 percent, suggesting that the reduction in borrowing has not been matched by a stronger market cash cushion.
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