Financial Supervisory Service Holds Emergency Meeting with TRS Securities Firms... Urges Restraint on Early Recovery of Fund TRS Funds

[Asia Economy Reporter Ji-hwan Park] On the afternoon of the 28th, the Financial Supervisory Service (FSS) held an emergency meeting with executives in charge of total return swap (TRS) contracts providing credit to six securities firms managing professional investor private equity funds (hedge funds), urging them "not to suddenly raise the TRS margin rate or terminate contracts early."

The FSS requested that unless there are unavoidable reasons such as defaults occurring in assets acquired through current TRS contracts, the securities firms should closely consult with the related asset management companies in advance before any sudden increase in margin rates or early termination of contracts, to ensure a smooth adjustment.

The securities firms attending the meeting were the six companies with TRS executives: Mirae Asset Daewoo, NH Investment & Securities, KB Securities, Korea Investment & Securities, Samsung Securities, and Shinhan Investment Corp.

The FSS emphasized, "This is to prevent the transmission of systemic risk to the entire capital market, such as market turmoil, and to protect investors who trusted existing contracts."

TRS transactions are over-the-counter derivative trades in which the total return seller (securities firm) purchases underlying assets such as stocks and bonds, and transfers all cash flows including profits and losses to the total return buyer (asset management company). Securities firms provide loans secured by fund assets and receive fees from the asset managers. On the other hand, asset managers can purchase assets worth about twice their investment capital by preparing only a certain level of margin.

This content was produced with the assistance of AI translation services.