Starting tomorrow, major brokerage firms will significantly reduce their margin loan limits. This move aims to mitigate investor losses and the risks associated with forced liquidations due to the surge in margin trading, commonly referred to as 'debt investment.'
According to the Korea Financial Investment Association on September 30, brokerage firms designated as comprehensive financial investment businesses will manage their margin loan amounts within 90% of their equity capital starting next month. This limit is 10 percentage points lower than the legal cap of 100% of equity capital.
The voluntary reduction in margin loan amounts by these firms is seen as an effort to control the scale of debt investment. This comes amid increased volatility in the securities market and a rise in leveraged investments, particularly in exchange-traded funds (ETFs).
The balance of margin loans remains high. Although it slightly decreased from 37.3 trillion won at the end of June, it still stood at 33.055 trillion won as of September 21, maintaining a level above 30 trillion won. This represents an increase of approximately 40.5% compared to 23.4928 trillion won at the end of September last year.
To prevent excessive debt investment, the minimum margin rate for margin loans will also be raised. A proposal is underway to increase the minimum margin rate by 5 percentage points to 50%. Notably, brokerage firms that are not classified as comprehensive financial investment businesses will also participate in this initiative.
Starting on October 19, measures will be implemented to prevent excessive concentration of margin loans on specific stocks. Ten comprehensive financial investment firms will reduce the proportion of margin loans for any single stock that exceeds 15% of each firm's total margin loans through self-regulatory measures, such as reducing individual limits or increasing margin rates. This is seen as a response to investments in single-stock leveraged ETFs.
However, to minimize market disruption, these new rules will not apply to existing margin loan balances but will be implemented for new investments. Depending on market conditions and the effectiveness of these measures, there may be a need to further lower the management standard from 15% to 10% within the year.
The specific levels of limit reductions and management methods will be left to the discretion of the brokerage firms, taking into account their customer composition and risk management conditions. The Korea Financial Investment Association plans to discuss expanding the application of the 90% credit limit and the increase in the minimum margin rate to brokerage firms that are not classified as comprehensive financial investment businesses based on future developments.
According to the Korea Financial Investment Association on September 30, brokerage firms designated as comprehensive financial investment businesses will manage their margin loan amounts within 90% of their equity capital starting next month. This limit is 10 percentage points lower than the legal cap of 100% of equity capital.
The voluntary reduction in margin loan amounts by these firms is seen as an effort to control the scale of debt investment. This comes amid increased volatility in the securities market and a rise in leveraged investments, particularly in exchange-traded funds (ETFs).
The balance of margin loans remains high. Although it slightly decreased from 37.3 trillion won at the end of June, it still stood at 33.055 trillion won as of September 21, maintaining a level above 30 trillion won. This represents an increase of approximately 40.5% compared to 23.4928 trillion won at the end of September last year.
To prevent excessive debt investment, the minimum margin rate for margin loans will also be raised. A proposal is underway to increase the minimum margin rate by 5 percentage points to 50%. Notably, brokerage firms that are not classified as comprehensive financial investment businesses will also participate in this initiative.
Starting on October 19, measures will be implemented to prevent excessive concentration of margin loans on specific stocks. Ten comprehensive financial investment firms will reduce the proportion of margin loans for any single stock that exceeds 15% of each firm's total margin loans through self-regulatory measures, such as reducing individual limits or increasing margin rates. This is seen as a response to investments in single-stock leveraged ETFs.
However, to minimize market disruption, these new rules will not apply to existing margin loan balances but will be implemented for new investments. Depending on market conditions and the effectiveness of these measures, there may be a need to further lower the management standard from 15% to 10% within the year.
The specific levels of limit reductions and management methods will be left to the discretion of the brokerage firms, taking into account their customer composition and risk management conditions. The Korea Financial Investment Association plans to discuss expanding the application of the 90% credit limit and the increase in the minimum margin rate to brokerage firms that are not classified as comprehensive financial investment businesses based on future developments.
* This article has been translated by AI.
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