Seoul waives minimum margin in emergency measures to stop Kospi freefall

[Source: The Financial Services Commission]

South Korea’s financial authorities will waive enforcement of minimum margin in emergency measures to stabilize the stock market as main Kospi has lost 22 percent in the biggest six-month fall in 32 years throughout the first half and continues south.

The Financial Services Commission last Friday held a meeting with related financial authorities to discuss measures to ease the volatility in the stock market. Kospi sank below the psychologically-important 2,300 won in the intraday session on Monday and closed down 0.22 percent at 2,300.34.

Under emergency measures, the minimum margin for borrowed stock investment would be waived until Sept. 30. From Thursday to Oct. 6, the daily ceiling for treasury stock buyback will be eased. Short-selling will be closely watched.

Starting Monday, securities firms can voluntarily set margins instead of uniformly complying with the 140-percent requirement on minimum equity in margin account. The liberalization is expected to spark less automatic selloff from decreased margin.

A margin account is a type of brokerage account in which securities firms lend individual investors cash to purchase stocks, with the account used as collateral. Brokers make a margin call, requesting account holders to deposit additional funds when the account’s value falls below the minimum required level. If the account holder fails to respond, the broker can sell shares in the margin account.

Under the local law, brokers are required to secure cash of equity collateral worth at least 140 percent of their loans. The temporary removal of the minimum trading requirement on margin accounts will allow securities firms to set their own threshold on margin trading for more flexible management.

Also, listed companies will be allowed to purchase more of their own stocks in the open market per day starting Thursday until Oct. 6.

Financial authorities vowed more vigilance on the market.

Financial Supervisory Service and Korea’s sole stock market operator Korea Exchange will have a joint inspection of the local market for any irregular short-selling activities. Authorities will meet every Friday to check on financial market conditions.

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