The Financial Supervisory Service recently called on the securities industry to strengthen investor guidance and risk management related to margin lending as stock market volatility has increased amid the recent Middle East war. The judgment is that the recently increased "debt investing" (investing with borrowed money) funds could lead to forced sell-offs amid sharp swings in the market.
The Financial Supervisory Service (FSS) held a meeting on leveraged investing with executives in charge of margin lending at 11 securities firms at the Korea Financial Investment Association in Yeouido, Seoul, on the afternoon of the 6th and stated accordingly.
Hwang Sun-oh, deputy governor of the Financial Supervisory Service (FSS), said, "The current size of margin lending and forced sell-offs is at a manageable level, but in the recent process of expanding market volatility, leveraged investing such as margin lending could act as a risk factor."
According to the Financial Supervisory Service (FSS), as of the 6th, the amount of margin lending stood at 3.28 trillion won, equivalent to 0.6% of market capitalization. From the 3rd to the 6th of this month, the average daily amount of forced sell-offs in leveraged investing was tallied at 83.9 billion won. This is 0.13% of total transaction value.
The Financial Supervisory Service (FSS) emphasized that securities firms should guide investors to understand the structure of leveraged transactions and the risks of forced sell-offs. It also noted the need to self-check investment limits such as credit provision, share best practices in risk management across the industry, and advance the risk management framework.
It also urged that interest rate adjustments on margin lending or fee promotions that could spur investors be run with caution.
An official at the Financial Supervisory Service (FSS) said, "If necessary, we plan to review response measures such as checking the appropriateness of managing margin lending promotions or margin lending limits."