Domestic stock markets have experienced a nearly 11% drop over two days, leading to a significant increase in margin calls from individual investors. As forced selling pressures mount due to the market decline, financial authorities have temporarily relaxed regulations on the maintenance ratio for margin trading collateral. However, margin calls remain excluded from this easing, continuing the burden of forced sales.
According to the Korea Financial Investment Association, the amount of forced sales due to margin trading reached 37.9 billion won on November 9. This figure represents a 5.4-fold increase from the previous trading day on November 6, when it was 7 billion won, marking the highest level since 54.2 billion won on October 19. The proportion of forced sales relative to margin trading also rose to 4.2%, up 3.4 percentage points from the previous trading day’s 0.8%.
The recent stock market decline is cited as a primary factor behind the surge in forced sales. The KOSPI index fell by 5.28% on November 5 and dropped another 6.02% on November 6. Concerns over increased regulations on artificial intelligence (AI) data centers following the U.S. midterm elections have contributed to a nearly 11% decline in the index over two days. The sharp drop in stock prices has increased the burden on investors engaged in margin trading. Margin trading allows investors to pay only a portion of the stock purchase price as collateral, with the remainder due two trading days later. If the payment is not made by the deadline, the stocks are typically sold off the next trading day. Consequently, losses incurred during a market downturn can lead to forced sales with a delay.
In response to concerns that forced sales resulting from the market decline could exacerbate further drops, financial authorities have taken action. On November 6, the government held an emergency market situation assessment meeting with relevant agencies and decided to exempt securities firms from the obligation to maintain a collateral ratio of 140% for margin trading for three months. This exemption is effective from November 9 until January 31 of the following year. Under current financial investment regulations, securities firms must secure a certain level of collateral when providing margin trading to investors. If the collateral maintenance ratio falls below the required level due to a drop in stock prices, additional collateral is requested, and failure to meet this requirement leads to forced sales.
This measure allows securities firms to lower the collateral maintenance ratio or delay the timing of forced disposals in response to market conditions. However, the 37.9 billion won reported by the Korea Financial Investment Association pertains specifically to forced sales due to unpaid margin calls and is distinct from forced sales resulting from insufficient collateral under the eased regulations.
Meanwhile, the balance of margin trading loans has continued to decline following the market drop. As of November 9, the balance stood at 28.7 trillion won, down 315.2 billion won from the previous trading day’s 28.4 trillion won. Compared to November 2, when it was 29.2 trillion won, the balance has decreased by 1.1 trillion won over five trading days. In contrast, the amount of margin trading debt rose to 1.1 trillion won on November 9, an increase of 198.5 billion won (21.9%) from the previous trading day’s 906.6 billion won.
* This article has been translated by AI.
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