In just three weeks, 5.5 trillion won has exited the stock market due to margin trading. Despite this, the balance of margin loans remains above 28 trillion won. Financial authorities have intervened to prevent forced selling, but concerns persist that any further declines could trigger additional selling pressure from remaining margin balances.
According to the Korea Financial Investment Association, as of November 5, the balance of margin trading loans was recorded at 28.7715 trillion won. This marks a decrease of approximately 5.5172 trillion won (16.1%) from the recent peak of 34.2887 trillion won on October 12.
The decline was particularly pronounced in the main stock market. During the same period, the KOSPI margin loan balance fell from 26.7152 trillion won to 22.3205 trillion won, a drop of 4.3947 trillion won. The KOSDAQ also saw a decrease from 7.5735 trillion won to 6.4510 trillion won, down 1.1224 trillion won. Roughly 80% of the total decline occurred in the KOSPI.
The reduction in margin loan balances is linked to increased market volatility. As stock prices fall, investors may sell off holdings or repay borrowed funds to mitigate losses. A slowdown in new margin purchases also contributes to the decline. However, it is difficult to interpret the entire decrease as a result of forced selling.
The scale of forced selling due to margin calls has decreased since mid-October. The Korea Financial Investment Association reported that the actual amount of forced selling compared to margin trading debts fell from 893 billion won on October 14 to 84 billion won on November 5. During the same period, the proportion of forced selling dropped from 7.2% to 0.9%. However, this data pertains specifically to forced selling from margin trading and should not be confused with forced sales due to insufficient collateral.
On November 6, financial authorities held an emergency meeting to assess market conditions and decided to temporarily exempt securities firms from the requirement to maintain a 140% collateral ratio for margin loans for three months. This measure aims to prevent excessive forced selling from amplifying market volatility in response to sharp declines in stock prices.
The Financial Supervisory Service announced that it would issue non-action letters to allow securities firms to flexibly manage their collateral maintenance ratios based on market conditions. The Korea Financial Investment Association also plans to monitor compliance with measures to strengthen self-regulation of margin trading risks.
Meanwhile, the margin loan balance increased by 1.269 trillion won from 28.6446 trillion won on November 4 to 28.7715 trillion won on November 5. Although this reflects a significant decrease compared to recent peaks, the balance saw a slight rebound on November 5. The impact of ongoing market volatility on margin trading will be assessed in subsequent statistics.
A securities industry official stated, "The significant reduction in margin loan balances over a short period may be related to investors' risk management actions in response to increased market volatility. Even with the easing of collateral ratio regulations, the burden on margin traders due to stock price fluctuations remains, so it is essential to monitor both market trends and margin balances moving forward."
* This article has been translated by AI.
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