Three-Month Easing of Collateral Maintenance Requirement… Further Market Measures in Focus
The government held an F4 meeting last Friday to review market conditions and decided to waive for three months securities firms’ requirement to maintain a 140% collateral ratio on margin loans. Previously, if an investor borrowed KRW 10 million from a securities firm to buy shares, the firm could demand additional collateral if the value of the pledged shares fell below KRW 14 million. The measure allows securities firms to adjust collateral ratios and their application at their discretion, easing pressure from forced liquidations.
The duration, ratio, and application procedures may vary by securities firm, so investors using margin loans should check each firm’s guidance. The measure is not expected to eliminate a large volume of forced selling, but aims to slow the chain reaction in which automatic sales after a sharp decline trigger further losses.
Reports said the November 11 emergency meeting of economy ministers could discuss measures including a market stabilization fund and a short-selling ban. A short-selling ban could be considered alongside issues such as market accessibility and inclusion in the MSCI Developed Markets Index. A market stabilization fund is structured to raise resources through contributions from financial institutions and others, rather than holding cash ready for immediate deployment.
Taiwan decided to deploy its National Stabilization Fund after the sharp decline, with the amount cited at 500 billion New Taiwan dollars, or more than KRW 20 trillion. A statistic was also cited showing that stocks had risen one month after a fund intervention in 77.7% of cases. Markets are watching how clearly South Korean authorities specify the actual buying capacity and timing of any further measures.