[DigitalToday reporter Sangyeop Oh (오상엽)] Financial authorities changed their direction on managing credit loans, often called debt investing, within 13 days. They warned late last month they could consider additional regulation to curb an increase in debt investing. After stock prices plunged, they instead temporarily eased collateral ratio rules to reduce the burden of forced selling.

The Financial Supervisory Service and the Korea Financial Investment Association said a measure exempting securities firms from the obligation to maintain margin loan collateral ratios is in effect from Nov. 9 through Jan. 31, 2027. The measure was decided at a joint market conditions review meeting of relevant agencies on Nov. 6.

Regulators’ previous stance focused on curbing the expansion of margin lending. On Oct. 27, the FSS held a meeting with risk management executives at 10 comprehensive financial investment businesses and said it could consider additional regulation if voluntary management of margin lending was insufficient.

Under a voluntary management plan prepared in September, those firms manage the balance of credit provided, including margin loans, within 90 percent of their equity capital. If the margin loan balance in a specific stock exceeds 15 percent of the firm’s total, they were told to reduce concentration, mainly by limiting new transactions.

But as the market plunged, the focus of management shifted from curbing the expansion of new credit provision to easing the forced-sale burden on existing margin loan investors.

On Nov. 6, when the measure was discussed, the KOSPI plunged enough for a circuit breaker to be triggered early in the session and ended down 6.02 percent at 5,059.69 from the previous session.

Under financial investment business rules, securities firms must secure collateral of at least 140 percent of the loan amount when providing margin loans. If the collateral ratio later falls below the firm’s standard, it demands additional collateral. If an investor fails to meet it, the firm can recover funds through forced selling.

As the FSS issued a non-action letter, securities firms will be able to adjust maintenance collateral ratios or postpone forced selling until late January next year depending on market conditions and the status of customer accounts.

In the financial investment industry, some point out that authorities shifted policy in a short period from curbing the expansion of margin lending to reducing the burden of forced selling after stock prices plunged.

The Oct. 27 measure focused on managing the overall scale of credit provision and risk concentration in specific stocks. The latest measure differs in its direct regulatory target because it eases the obligation to maintain collateral for existing margin loan accounts.

Securities firms also introduced a series of measures to lower collateral ratios and postpone forced selling.

Mirae Asset Securities will cut the collateral ratio for domestic stock margin loans by 10 percentage points to 130 percent from 140 percent from Nov. 9 through Jan. 31 next year. It will keep the collateral ratio for overseas stocks at 140 percent.

Korea Investment & Securities will run a three-month postponement program for customers who apply when they are subject to forced selling on the same day or the next day. Customers with collateral ratios of at least 120 percent but below 130 percent can postpone once. Those with ratios of at least 130 percent but below 140 percent can apply each business day to postpone.

Samsung Securities will apply a maintenance collateral ratio that is 10 percentage points lower than the existing level for Nov. 9 only and plans to build a system for customers to apply separately afterward.

Kiwoom Securities postpones forced selling by 1 day for accounts subject to forced selling if customers apply.

Even if forced selling is postponed, the margin loan principal itself does not decline. If share prices fall further during the postponement period, collateral ratios could drop further, increasing the amount investors must bear or losses from future forced selling.

Management of new margin lending is also continuing.

Korea Investment & Securities also raised the margin loan deposit rate to 50 percent from 45 percent for new trades from Nov. 9, alongside the postponement of forced selling. It raises the burden on customers seeking to borrow to buy stocks while giving existing margin loan customers more time to repay.

The Korea Financial Investment Association also plans to continue checking whether the existing voluntary management plan for margin lending is being implemented during the exemption period from the obligation to maintain collateral ratios.

Margin loan balances have been declining even before the latest measure took effect. According to the association, margin trading loan balances on the main board and the KOSDAQ market stood at 28.39 trillion won on Nov. 6, down about 5.9 trillion won, or 17.2 percent, from 34.29 trillion won on Oct. 12.

Investor deposit funds, considered standby cash for the stock market, fell below 90 trillion won at 89.23 trillion won on Nov. 4 and 88.85 trillion won on Nov. 5, then rose back to 90.33 trillion won on Nov. 6.

Financial authorities also temporarily exempted the obligation to maintain collateral ratios for margin loans in July 2022 as market volatility increased. The application period, originally set to run through the end of September, was extended through the end of December that year.

A financial investment industry official said the measure could help reduce immediate forced-selling volume, but if share prices fall further during the postponement period, investor losses and securities firms’ risk of unpaid receivables could grow at the same time. The official added that requiring separate customer applications or consent, rather than postponing forced selling across the board, is also intended to manage such risks.