Korean brokerage firms raised margin requirements to 40% starting July 1, limiting leveraged stock trading by individual investors ahead of the Korean stock market's sharp decline on July 7-8. Despite KOSPI falling approximately 10% over those two days, forced liquidations of margin positions remained at 2.2% of outstanding margin debt on July 7, below the June average of 5.1%, according to data from the Korea Financial Investment Association and Mirae Asset Securities. The preemptive increase in margin rates — implemented by Mirae Asset Securities, Kiwoom Securities, Korea Investment Securities, and Meritz Securities — reduced maximum leverage from 5x to 2.5x, constraining individual investors' debt-funded positions during a period of heightened market volatility driven by concentration in large-cap semiconductor stocks and rapid price swings.
Brokerage Firms Raised Margin Requirements to 40% on July 1
Mirae Asset Securities uniformly raised margin rates from the previous 20-30% to 40% for certain stocks starting July 1. The firm stated it made the preemptive adjustment due to the domestic stock market showing higher volatility than in the past, with market capitalization concentrated in large semiconductor stocks, increased leverage ETF assets, and expanded short-term price fluctuations, which raised the possibility of amplified market shocks. Kiwoom Securities, Korea Investment Securities, and Meritz Securities joined in raising margin requirements, restricting excessive leveraged investment by individual investors.
On July 7, when KOSPI plunged 4.91%, short-term debt-funded trading classified as consignment trading receivables totaled 1.14 trillion won, with forced sales amounting to 32 billion won, representing a 2.2% share. This figure is significantly lower than the 10% spike in forced sales relative to margin debt recorded in early July when the market also declined sharply.
Margin Trading Volume Declined Following Rate Increase
The monthly average of consignment trading receivables from January to March was approximately 967.4 billion won, but the increase accelerated after March, reaching 1.56 trillion won in June. However, in July, consignment trading receivables dropped back to the early 1 trillion won range. When the margin rate was 20%, investors could leverage up to 5 times their capital, but with the rate raised to 40%, maximum leverage fell to 2.5 times, naturally reducing debt-funded investment.
Mirae Asset Researcher Explains Investor Protection Benefits
Kim Seok-hwan, a researcher at Mirae Asset Securities, stated, "The fact that forced sales of individual investors did not increase recently was largely due to the brokerage firms' upward adjustment of margin rates. When the margin rate was 20%, leverage investment of up to 5 times was possible, but when raised to 40%, only 2.5 times is possible, naturally reducing debt-funded investment."
Kim explained, "The higher the margin rate, the greater the proportion of the investor's own capital, reducing the leverage effect and decreasing both the possibility of margin debt occurrence and the risk of forced sales. This is an important decision from the perspective of investor protection."
FAQ
What did Korean brokerage firms do on July 1 regarding margin requirements?
Korean brokerage firms including Mirae Asset Securities, Kiwoom Securities, Korea Investment Securities, and Meritz Securities raised margin requirements from 20-30% to 40% starting July 1 for certain stocks, reducing maximum leverage from 5x to 2.5x.
Why did forced liquidations remain low despite the KOSPI decline on July 7-8?
Forced liquidations remained at 2.2% of margin debt on July 7 — below the June average of 5.1% — because the preemptive margin rate increase on July 1 had already reduced individual investors' leveraged positions, lowering the risk of forced sales when KOSPI fell approximately 10% over July 7-8.
