With the global stock market facing a severe frost in the aftermath of the U.S. Democratic Party's landslide victory in the midterm elections, major domestic securities companies have simultaneously changed their credit and loan collateral maintenance ratios or postponed counter trading.
Securities companies have taken detailed measures in response to the authorities' announcement of 'exemption from the obligation to maintain credit loan coverage ratio (140%) for 3 months' to prevent further sharp decline in the stock market due to adverse trading.
According to the financial investment industry on the 6th, Mirae Asset Securities [006800] announced on this day that it will apply changes to the credit and loan collateral maintenance ratio from the 9th in accordance with the step-by-step response measures of the relevant authorities due to the expansion of domestic and foreign stock market volatility.
In the case of domestic stocks, the collateral maintenance ratio will be lowered from 140% to 130%, but for managed and liquidated stocks, it will be maintained at 160% as before.
In the case of overseas stock-secured loans, the rate is 140% as before, but if there are both domestic stock credit extensions and overseas stock-secured loans, the collateral maintenance ratio will be calculated by taking a weighted average between 130 and 140%.
Mirae Asset Securities informed that this measure will be applied until January 31 of next year, but may change depending on market conditions.
Some securities companies, such as Korea Investment & Securities and Kiwoom Securities [039490], have chosen to temporarily postpone reverse trading only for customers who apply separately.
Korea Investment & Securities announced that it will implement a three-month grace period and that only customers eligible for next-day or same-day counter-trading will be eligible.
For example, if the reverse sale is confirmed based on the completion of collateral evaluation after the Korea Exchange (KRX) closes on this day and you become a customer subject to the reverse sale on the morning of the 9th, the next business day, you can apply for a postponement through the branch or customer center.
The application for deferment is effective only on business days, and if the collateral ratio as of market close is between 130% and 140%, the deferral can be continued by re-applying every day. 120-130% can only be deferred once, and applications below 120% are not possible.
Kiwoom Securities applied a more stringent standard in which a one-day deferral of reverse trading was applied to accounts that were subject to reverse trading the next day or the same day because the collateral ratio was 130% or more but less than 140% as of market closing.
In addition, Samsung Securities [016360] said that it plans to lower the collateral maintenance ratio by 10% from the current level for one day on November 9th, but plans to establish a separate application system from later dates. Other securities companies are also suggesting deferment plans according to their own risk management standards.
These measures are intended to respond to the situation in which volatility is increasing as stock markets in major countries such as the United States, Korea, Japan, and Taiwan plummet, raising concerns about strengthening regulations on the construction of artificial intelligence (AI) data centers following the U.S. midterm election held on the 3rd local time.
On this day, Deputy Prime Minister and Minister of Finance and Economy Lee Hyung-il, Financial Services Commission Chairman Lee Eok-won, Financial Supervisory Service Chairman Lee Chan-jin, and Bank of Korea Deputy Governor Kwon Min-soo held a joint market situation review meeting with related organizations and decided to exempt securities companies from their obligation to maintain credit loan collateral ratios (140%) for three months.
If the valuation of an account using credit trading falls below the collateral maintenance ratio due to a drop in the stock price, a margin call (additional margin request) will be received, and if the call is not responded to, it will be forcibly disposed of through reverse trading.
The obligation to maintain the credit loan collateral ratio requires securities companies to secure more than 140% of collateral when executing credit loans. If this obligation is exempted, each securities company will be able to flexibly determine the collateral maintenance ratio in consideration of market conditions, etc.
The relevant authorities explained, “This is a measure to prevent a situation where market volatility is amplified due to excessive counter-trading due to a sharp drop in stock prices.” If stocks are forcibly liquidated due to reverse trading, it will lead to a vicious cycle of further stock market declines. Therefore, in order to reduce reverse trading situations, it has been decided to temporarily exempt the collateral ratio maintenance ratio.
In addition, he said, “We have decided to closely monitor excessive anxiety and the concentration of supply and demand, and prepare additional measures to stabilize the market if volatility increases further.”
