Exchanges and Securities Industry Take Investor Protection Measures Against Reckless Debt Investing and Theme Stock Concentration

The Korea Exchange and the securities industry are strengthening risk management against indiscriminate 'debt investing' and the concentration on theme stocks to protect investors.

On the 25th, the Korea Exchange and the Korea Financial Investment Association requested special caution from financial investment companies and investors, considering the increasing trend of margin loans despite the recent rising market volatility.

Compared to the beginning of the year, the KOSPI rose by 14%, and the KOSDAQ by 34%. Accordingly, the scale of margin loans also increased significantly, growing from around 16 trillion won at the start of the year to 20.1246 trillion won as of the 23rd. On the 17th, it even recorded a yearly high of 20.5573 trillion won.

Korea Exchange, Yeouido, Seoul. Photo by Jinhyung Kang aymsdream@

In response, securities firms have taken proactive measures such as expanding differentiated margin loan deposit rates, raising entrusted margin rates, and providing investor cautionary guidance to protect investors from leveraged investments using margin loans and the concentration on specific sectors and theme stocks.

The Exchange and the Association explained, "Due to these efforts by the securities industry and market trends, the recent increase in margin loans has somewhat eased. However, given the expanded volatility centered on theme stocks and the accelerated rotation of trading, special caution is still required regarding the risks related to leveraged investments and theme stock concentration."

Considering the recent market situation with increased global economic volatility including China and the continued sharp fluctuations of some theme stocks despite recent efforts, the securities industry plans to further strengthen investor protection by thoroughly implementing the 'Model Code of Risk Management for Financial Investment Companies' and their own risk management standards. Accordingly, they will strictly comply with internal standards regarding the selection of margin trading eligible stocks, deposit rates and collateral maintenance ratios per stock, and differentiated limits per customer, while providing margin trading limits at reasonable levels by fully considering each customer's repayment ability, creditworthiness, and investment propensity. Margin trading solicitation will be prohibited for customers deemed unsuitable for margin trading. Additionally, from the company's risk management perspective, they plan to periodically review the operation of management systems capable of recognizing, measuring, monitoring, and controlling risk factors caused by excessive margin trading, as well as the adequacy of internal control systems.

The Association will continuously request enhanced risk management related to margin loans from securities firms' margin loan departments and compliance officer councils from an internal control perspective.

The Market Surveillance Committee of the Exchange perceives the indiscriminate herd trading of theme stocks in the market as a situation that raises concerns about investor losses. To prevent overheating of theme stocks, it plans to actively conduct planned surveillance targeting theme stocks, vigorously initiate inquiry disclosures for theme stocks, and encourage active reporting of unfair trading.

The Exchange and the Association reminded investors that stocks with high past margin loan balances experienced larger price declines during downturns and urged them to consider investment risks when using margin loans. A Korea Exchange official emphasized, "Margin loans can cause significant losses depending on market conditions. In the case of theme stocks, speculative funds often cause relatively high price volatility, which can lead to substantial losses in a short period due to changes in perception of the theme and market conditions." He added, "Leveraged investments may require additional collateral when stock prices fall, so investors should carefully consider the nature of their investment funds and repayment ability before investing."

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