From Oct. 1, Korea's 10 largest brokerages will lower the limit on how much money they lend individuals to buy stocks. Instead of the legal maximum of 100% of their own capital (the money a brokerage holds itself), they will lend only up to 90%. As of Sept. 23, margin loans, meaning stocks individuals bought with money borrowed from brokerages, stood at KRW 32.7764 trillion.<\/p>\n\n\n\n
So the first reading is that borrowed-money investing will shrink and the market will cool. But the real point lies elsewhere. The rules target Samsung Electronics and SK hynix, yet in September margin debt grew on the KOSDAQ, Korea's smaller-company market.<\/p>\n\n\n\n
On Sept. 23, the Korea Financial Investment Association (KOFIA, the industry body of Korean brokerages) announced three measures together with 10 large brokerages designated as comprehensive financial investment business entities (big firms with enough capital to lend to companies). On Oct. 1, each firm's total margin lending limit drops to 90% of its own capital.<\/p>\n\n\n\n
From Oct. 19, if margin loans on a single stock exceed 15% of a brokerage's total margin loans, that brokerage will draw up its own plan to reduce that stock's share. The examples given are cutting individual credit limits and raising the down-payment ratio, and each firm decides the specific method. KOFIA said it plans to apply this measure to new investments, not to existing ones.<\/p>\n\n\n\n
KOFIA is also pushing to raise the down-payment ratio (the share of the purchase price you must pay with your own money when buying stocks on credit) from 45% to 50%. According to KOFIA, it is scheduled to take effect within the year, after system development and other steps.<\/p>\n\n\n\n
As of Sept. 21, margin loans on Samsung Electronics and SK hynix stood at about KRW 4.9 trillion each. Their combined KRW 10 trillion is 40% of the roughly KRW 25 trillion in KOSPI margin debt.<\/p>\n\n\n\n
Dividing each stock's balance by the total margin debt of KRW 32.7764 trillion on Sept. 23 gives about 15% each. That makes these two stocks the most likely to be hit first. But this is a market-wide approximation that only means they sit near the line. The 15% test is applied to each brokerage's own total margin loans, so the share can differ from firm to firm. KOFIA will also review lowering the threshold to 10% within the year.<\/p>\n\n\n\n
As of Aug. 27, margin debt was KRW 33.329 trillion, up KRW 4.394 trillion (15.2%) from the end of July. Of that increase, 82.8% was on the KOSPI. Samsung Electronics and SK hynix alone added KRW 1.574 trillion, or 43.3% of the KOSPI increase. Compared with the total increase, that is about 36%. Put simply, a little over a third of the new debt in one month went into these two stocks.<\/p>\n\n\n\n
The balance rose from KRW 27.4439 trillion on Aug. 3 to KRW 33.5958 trillion on Sept. 4. That is why the rules aim at these two stocks first.<\/p>\n\n\n\n
From Sept. 1 to 23, KOSPI margin debt fell from KRW 26.4294 trillion to KRW 25.527 trillion, down KRW 902.4 billion (3.4%). Over the same period, KOSDAQ margin debt rose from KRW 7.0008 trillion to KRW 7.2495 trillion, up KRW 248.7 billion. By BITPRESS's calculation, that is a 3.6% increase. The KOSDAQ's share of all margin debt grew from 20.9% to 22.1%.<\/p>\n\n\n\n
Put simply, through Sept. 23, debt shrank in the big market and grew in the small one. On Sept. 30, the day before the rules took effect, the KOSPI fell 0.48% while the KOSDAQ rose 0.72%.<\/p>\n\n\n\n
Because the new rules apply to new borrowing, a lower limit does not force anyone to sell stocks already bought with borrowed money. What triggers forced selling is the stock price. When the collateral (the market value of the stocks bought on credit) falls below a set percentage of the loan (the maintenance ratio), the brokerage asks for more collateral. At Korea Investment & Securities, that ratio is 140-160%, and it differs by brokerage.<\/p>\n\n\n\n
If the investor does not top up by the next business day, the brokerage sells the stock on the business day after that. This is forced selling. The number of shares sold is calculated using 85% of the previous day's closing price, and the order is placed at market price. Depending on market conditions, the shares can be sold at the daily lower price limit. In general, the same amount of selling tends to move prices more in stocks with a smaller market value. That is why, in BITPRESS's reading, the KOSDAQ, where the share of debt has grown, may be weaker in a downturn.<\/p>\n\n\n\n
Here is the math on the higher down-payment ratio. With KRW 10 million of your own money, you can buy about KRW 22.22 million worth of stock (about KRW 12.22 million borrowed) at a 45% ratio, and KRW 20 million worth (KRW 10 million borrowed) once 50% takes effect. Assuming a 140% maintenance ratio, the collateral falls short and you get a call for more collateral when prices drop about 23% in the first case and 30% in the second. Forced selling comes after that, if you fail to top up. Put simply, you borrow less but gain more room before a collateral call.<\/p>\n\n\n\n
On June 9, margin debt was KRW 37.929 trillion, close to its all-time high (KRW 38.0226 trillion). While the KOSPI fell 5.54% on June 5 and 8.29% on June 8, then rebounded 8.18% on June 9, forced selling topped KRW 100 billion on three straight trading days from June 5 to 9, totaling KRW 475.1 billion.<\/p>\n\n\n\n
Put simply, even on June 9, when the KOSPI rebounded 8.18%, forced selling exceeded KRW 100 billion. This time the difference is that new loans are shrinking for Samsung Electronics and SK hynix, while in September debt grew on the KOSDAQ.<\/p>\n\n\n\n
A lower margin lending limit will not shake the KOSDAQ today. The new rules only apply to new borrowing, and the stocks most likely to hit the single-stock threshold first are Samsung Electronics and SK hynix. What could shake the KOSDAQ is not the rule but the moment collateral lines break in the next downturn.<\/p>\n\n\n\n
What has changed is where the debt sits. From Sept. 1 to 23, KOSPI margin debt fell KRW 902.4 billion while KOSDAQ margin debt rose KRW 248.7 billion. When debt piles up in a small market, the same drop can spread into bigger forced selling.<\/p>\n\n\n\n
There are three questions to judge by. Does the rule block only new borrowing, or does it touch money already borrowed? Are the stocks the rule blocks in the same market where debt is growing? And if it were your loan, how far would prices have to fall to break the collateral line?<\/p>\n\n\n\n
Sources Glossary<\/strong> BITPRESS articles are information to help your investment decisions, not a recommendation to buy or sell any stock or coin. Investment decisions and their results are your own responsibility.<\/p>","protected":false},"excerpt":{"rendered":" Ten major brokerages will cut their margin-loan ('debt-fueled investing') limit to 90% of equity capital from Oct. 1. Samsung Electronics and SK hynix are likely to be the first caught by the stock concentration rule taking effect Oct. 19. Meanwhile, from Sept. 1 to 23, KOSPI margin debt fell KRW 902.4 billion while KOSDAQ margin debt rose KRW 248.7 billion.<\/p>","protected":false},"author":3,"featured_media":3288,"comment_status":"closed","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_monsterinsights_skip_tracking":false,"bitpress_en_title":"","bitpress_en_desc":"","footnotes":""},"categories":[223],"tags":[404,997,551,998,995,206,996,364,221,387],"class_list":["post-3287","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-korea-stocks","tag-sk","tag-997","tag-551","tag-998","tag-995","tag-206","tag-996","tag-364","tag-221","tag-387"],"acf":[],"yoast_head":"\n
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MarginLoans<\/strong> \u2014 Borrowing money from a brokerage to buy stocks, with the stocks you buy serving as collateral for the loan.
DownPaymentRatio<\/strong> \u2014 The share of the total purchase you must pay with your own money first when buying stocks on credit.
Maintenance ratio<\/strong> \u2014 The minimum value of the stocks bought on credit, as a percentage of the loan; 140-160% at Korea Investment & Securities, and it differs by brokerage.
Forced liquidation<\/strong> \u2014 When collateral runs short and the investor cannot add more money, the brokerage sells the stocks without the investor's consent.
Comprehensive financial investment business entity<\/strong> \u2014 A large brokerage with enough capital to be designated for wider business, such as lending to companies.
KOSPI<\/strong> \u2014 Korea's main stock market and its benchmark index, home to big companies such as Samsung Electronics and SK hynix.
KOSDAQ<\/strong> \u2014 Korea's second stock market, made up mostly of smaller and younger tech and growth companies, where prices tend to swing more.<\/p>\n\n\n\n