Securities Industry Strengthens Margin Credit Management... Credit Extension Limited to 90% of Equity Capital

Minimum Margin Requirement for Margin Credit to Be Raised to 50%

The securities industry will strengthen the management of margin credit for investors. Under current regulations, the credit extension limit for comprehensive financial investment companies is set at up to 100% of their equity capital, but this will be voluntarily managed to stay within 90% going forward.

On September 23, the Korea Financial Investment Association announced that it would implement a "Strengthened Autonomous Management Plan for Margin Credit" together with 10 comprehensive financial investment companies to preemptively manage risks and protect investors in preparation for increasing market volatility.

At a meeting of Chief Risk Officers (CROs) from comprehensive financial investment companies held on September 21, participants agreed that while margin credit is a tool for investors to manage capital and pursue various investment strategies, it can amplify the risk of investment losses and forced liquidation in times of market volatility. Hence, proactive and systematic risk management by securities companies is necessary.

To prevent margin credit from expanding excessively, from October 1, the industry will voluntarily manage the total amount of credit extensions—including margin credit—by comprehensive financial investment companies, down from the legal limit of 100% of equity capital to within 90% of equity capital, a reduction of 10 percentage points.

Furthermore, in order to discourage excessive leveraged investments, there are plans to raise the minimum margin requirement for margin credit by 5 percentage points to 50%. However, since raising the minimum margin will require time for necessary IT development and simultaneous implementation across all securities firms, it will be carried out within this year after discussions among all firms.

Considering the overall scale of investor use of margin credit, the concentration of investment assets, and market volatility for each comprehensive financial investment company, if the proportion of margin credit in a particular stock exceeds 15% of the company’s total margin credit, each company will establish autonomous management measures to voluntarily reduce this proportion. Measures could include lowering individual investor limits for margin credit and increasing the margin requirement, depending on the company’s strategy.

These measures will take effect from October 19, considering the time required to notify investors and develop the necessary systems. To minimize market shock, they will apply only to new investments, not to amounts already invested. If necessary, reducing the limit further to 10% may also be pursued within the year, depending on future market conditions and impact.

The specific level of limit reduction and management methods under this plan will be determined autonomously by each comprehensive financial investment company, based on their customer composition and risk management capacity. The Association will regularly monitor compliance with these measures.

Additionally, the Association plans to promptly consult to ensure that both the 90% credit extension limit and the 5 percentage point increase in minimum margin requirements are also applied to other securities companies, beyond comprehensive financial investment firms.

Cheon Sungdae, Head of the Securities and Futures Division at the Korea Financial Investment Association, stated, "Excessive use of margin credit can increase investor losses during periods of heightened market volatility. We will continue to protect investors and foster a trustworthy capital market environment through proactive and voluntary management by the industry."

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