Son Byung-du, Exchange Chairman: "Secured '21 trillion' to Prepare for Securities Firms' Default... Emergency Response Activated"

Son Byung-du, Chairman of the Korea Exchange, is being interviewed at the Korea Exchange in Yeouido, Seoul, on the 8th. Photo by Kang Jin-hyung aymsdream@

[Asia Economy Reporter Kwon Jae-hee] Son Byung-du (58), Chairman of the Korea Exchange (KRX), announced on the 13th that they have secured 21 trillion won to prepare for the risk of settlement default by securities firms and have activated an emergency response system.

Chairman Son stated regarding the recent liquidity risk exposure of securities firms due to the tightening of the short-term funding market, "Although they faced a temporary liquidity mismatch, I believe the urgent issues have been resolved," adding, "As long as large securities firms do not encounter liquidity difficulties, the impact on the market is not significant. However, from the exchange’s perspective, the greatest risk is when order transactions are not fulfilled."

He continued, "The Clearing Department functions as a Central Counterparty (CCP), and it is securing settlement performance funds stably in line with the expansion of on- and off-exchange risk scale. It monitors daily through stress tests (measuring the maximum possible loss under crisis scenarios) whether the funds are sufficient," emphasizing, "We will also conduct an emergency crisis response drill next month to prepare for contract defaults."

The exchange is currently monitoring the financial stability of member securities firms, including their credit ratings and financial ratios, designating watch-listed members whose settlement default risk may increase to analyze sensitivity, and focusing on accounts with excessive positions and Net Capital Ratio (NCR).

Following incidents such as the suspension of Lehman Brothers’ Seoul branch in 2008 and the bankruptcy of Hanmaek Investment & Securities in 2015, the exchange has been measuring member-specific risk exposure daily and strengthening the settlement default risk management system. The CCP is an institution that prevents settlement default risks arising from securities or on- and off-exchange derivatives transactions, ensuring investors can timely receive securities or payments.

When a member firm (securities company) faces or is likely to face a settlement default, the exchange directly declares it and sequentially injects funds. So far, the only case of fund injection due to settlement default in Korea was the Hanmaek incident.

As of the end of last month, settlement performance funds have accumulated to approximately 20.9814 trillion won. This includes 18.168 trillion won in margin deposits, 2.3634 trillion won in the joint compensation fund, and 450 billion won in settlement reserves. The joint compensation fund and settlement reserves have significantly increased from 200 billion won and 100 billion won respectively in 2011.

Chairman Son said, "Usually, defaults occur suddenly when the chain breaks due to inability to pay or receive money, but the settlement performance funds in Korea’s securities and derivatives industry are at a fairly sufficient level."

He added, "Looking at the recent market atmosphere, uncertainty is increasing, so it is too early to be complacent," forecasting, "We are at the beginning of winter, and risk management should be the focus next year."

He further stated, "During such times, we will revise the system to prevent investors from unfairly suffering losses or listed companies from being delisted."

Chairman Son emphasized, "At the very least, individual investors should not suffer damage," and said, "We will strengthen cooperation with the prosecution and intensify crackdowns to eliminate rule-breakers and unfair trading practices in the market."

He also explained, "Recently, we have significantly increased market surveillance personnel, established a dedicated department to detect illegal short selling, conduct daily inspections, and drastically shorten detection cycles," adding, "We have improved the system for detecting unfair trading such as market manipulation and are specially managing accounts of habitual offenders with a history of unfair trading."

He mentioned plans to supplement the disclosure system by requiring inquiry disclosures for companies facing financial difficulties or cut off from bank loans and managing them in connection with the Korea Federation of Banks.

Additionally, Chairman Son said, "We cannot formally push out companies that have become inevitably difficult due to economic downturns," and emphasized, "We recently relaxed the delisting system so that companies falling short of capital erosion and sales criteria are not immediately delisted but undergo review, and we will examine if further improvements are needed."

Chairman Son revealed that during his remaining 13-month term, he will focus on securities-type token trading, institutional advancement to resolve the 'Korea Discount' (the discount on Korean stock market valuations), and organizational culture improvement.

He explained, "Starting next year, securities-type tokens recognized by financial authorities will be listed and traded on the exchange," adding, "Musicow, Casa Korea, and fractional real estate investment will be the initial targets."

He continued, "One of the factors behind the Korea Discount is the tendency in corporate management to disregard the interests of individual investors," and said, "We will devote ourselves to institutional advancement such as resolving the Korea Discount, protecting minority shareholders, expanding English disclosures, and improving dividend payment timing."

Chairman Son stated, "Ahead of the World Table Tennis Championships to be held in Busan in 2024, to contribute to the local community where the headquarters is located and promote grassroots sports, we will establish a professional table tennis team on the 23rd and aim to transform the exchange’s organizational culture into an agile and youthful organization during the remaining term."

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