Securities Industry to Tighten 'Debt-Funded Investing' Starting Next Month, Cut Credit Extension Limit to 90%

[Financial News] Securities firms will begin tightening limit management next month to reduce the scale of "debt-funded investing" (investing with borrowed money).
Korea Financial Investment Association announced on the 23rd that it would implement "measures to strengthen voluntary management of margin lending" with comprehensive financial investment business operators to protect investors and prepare for increased market volatility.
Starting on the first of next month, comprehensive financial investment business operators will voluntarily manage the total amount of credit extensions, including margin lending, at no more than 90% of their equity capital. This is a 10-percentage-point reduction from the statutory limit of 100% of equity capital.
The industry will also pursue a plan to raise the minimum margin requirement for margin lending by 5 percentage points to 50% to prevent excessive leveraged investing. Because the increase requires preparations for system development and simultaneous implementation by all securities firms, it is scheduled to take effect within the year after industry discussions.
Measures will also be pursued to prevent margin lending from becoming overly concentrated in specific stocks. If the share of margin lending for a single stock exceeds 15% of a securities firm's total margin lending, the firm will voluntarily manage the exposure by reducing individual margin-lending limits or raising margin requirements.
The measures will take effect on the 19th of next month, taking into account the schedule for notifying investors and developing the necessary systems. To minimize the impact on the market, they will apply only to new investments. Depending on market conditions, the industry may also consider lowering the threshold to 10%.
Cheon Seong-dae, head of the Securities and Futures Division at Korea Financial Investment Association, said, "Excessive use of margin lending can increase investor losses as market volatility expands. Through voluntary and proactive management by the industry, we will protect investors and create a reliable capital market environment."

[email protected] Seo Min-ji Reporter