Government Waives Mandatory Collateral Ratio on Margin Financing for Three Months
The government will waive for three months, starting on the 9th, the requirement that brokerages maintain a 140% collateral ratio on margin financing. The waiver is aimed at easing the burden on investors using margin loans who would otherwise be forced to sell their stocks through brokerages' margin calls during steep market declines, and at preventing unnecessary volatility from mounting as such selling piles up. The four key agencies that set economic and financial policy moved to prevent the market from being shaken further as falling stock prices erode the value of investors' stock collateral, triggering more 'margin calls'—forced sales to repay loans.
Deputy Prime Minister and Minister of Economy and Finance Lee Hyung-il finalized the plan at an emergency joint 'Market Situation Review Meeting' with related agencies held at the Seoul Government Complex on the 6th. 'We take seriously the growing volatility in global stock markets following the U.S. midterm elections,' the deputy prime minister said. The meeting, attended by FSC Chairman Lee Eok-won, FSS Governor Lee Chan-jin, and Bank of Korea Deputy Governor Kwon Min-soo, discussed domestic and international financial market trends since the U.S. midterms and how to respond.
Participants assessed that the recent stock declines were the combined result of policy uncertainty surrounding the AI industry, including concerns over AI data center regulations, and a global retrenchment in investor sentiment, noting that the domestic market has reacted excessively to external factors. 'The fundamentals of our economy are solid, and we need to guard against pessimism driven by anxiety,' they said.
The participants agreed to prepare additional market-stabilizing measures should volatility expand further. They also pledged to continue policy efforts to improve the structure of the capital market, including measures to enhance corporate value and bolster confidence in the capital market.
