After Preventing Forced Sales... Ant Investors Increasing Margin Debt Investments

Securities Firms Ease Credit Loan Ratios to Minimize Individual Investor Losses
Outstanding Brokerage Receivables Investment... 312.1 Billion Won Hits Highest This Year

[Image source=Yonhap News]

[Asia Economy Reporter Park Jihwan] This year, the scale of individual investors borrowing money to invest in stocks has surged dramatically. In particular, margin trading unpaid balances have been increasing rapidly day by day. On the 16th, the first day of the Financial Services Commission's announced credit loan collateral ratio relaxation measure, the highest record of the year was achieved. There are also criticisms that the policy's intention to suppress excessive forced liquidation by securities firms and minimize individual investors' losses due to a sharp stock market decline is being exploited in reverse.

According to the Korea Exchange on the 18th, as of the 11th, the outstanding balance of credit transactions in the stock market was 10.1345 trillion won. The KOSPI market accounted for 4.5512 trillion won, and the KOSDAQ market for 5.5832 trillion won. This is because many investors have bet on stocks with borrowed money despite the recent downturn. Until the beginning of this year, the outstanding balance of credit transactions remained in the early 9 trillion won range but showed a sharp rise since last month.

In particular, the margin trading unpaid balance reached 312.1 billion won on the 16th, marking the highest point this year. It nearly doubled from the level of 160 billion won at the beginning of the year. The daily average margin trading unpaid balance transactions increased to 238.2 billion won by the 16th of this month. If the current trend continues, it is highly likely to surpass the previous highest monthly average unpaid balance record of 264.4 billion won in August 2011.

The actual forced liquidation amount compared to the margin trading unpaid balance was 19.145 billion won, with the forced liquidation ratio against daily unpaid balances reaching 6.7%. Unpaid transactions are short-term loans where securities firms pay the insufficient settlement amount on behalf of investors for three trading days when investors lack stock settlement funds. If the unpaid balance is not repaid, securities firms implement forced liquidation.

From the 16th, the Financial Services Commission decided to exempt securities firms from the obligation to maintain the credit loan collateral ratio. Typically, securities firms set the collateral ratio around 140%. If the value of collateral stocks falls below 140% of the loan amount, additional collateral (margin call) is requested, or forced liquidation is conducted to forcibly sell the customer's stocks. The original policy intention focused on individual investors' losses as the domestic stock market recently plummeted due to the COVID-19 crisis, with forced liquidation volumes reaching the highest in 11 years. From the beginning of this month to the 16th, the average daily forced liquidation amount was 13.522 billion won, the largest in 10 years and 10 months since May 2009 (14.3 billion won).

However, investors responded, "The FSC announcement was interpreted as a request not to conduct forced liquidation even when the collateral ratio falls below 140%," and "Since the burden of forced liquidation has decreased, I will make additional purchases of stocks with high rebound potential." It is also reported that complaints are pouring in as some securities firms are violating the government's credit loan collateral ratio relaxation measures and executing forced liquidation.

Securities firms are caught in a dilemma. They are considering following the financial authorities' policy, but there is a risk of large losses and breach of fiduciary duty controversies. A securities firm official explained, "With the government's signal, it is difficult to strongly proceed with forced liquidation against investors," adding, "We aim to minimize investor losses by switching from the existing opening price limit-down sales to intraday sales within the scope that does not raise breach of fiduciary duty issues."

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