The Korea Exchange (KRX) decided to abolish the obligation to collect 100% initial margin that had been imposed when designating investment warning or investment risk issues. Until now, to buy stocks designated as investment warning or investment risk issues, transactions were possible only if the entire margin was paid in cash.
According to the exchange's legal portal on the 24th, the exchange gave notice of amendments to the business regulations for the KOSPI, KOSDAQ, and KONEX markets that include these measures. The main point is to exempt the obligation to collect 100% initial margin for issues designated under the market alert system.
Initial margin is a deposit that an investor places with a securities firm when buying stocks. Forcing it to be 100% in cash was intended to block unsettled transactions at the source.
If this rule is amended, it is expected that unsettled transactions will become possible going forward even when investing in issues designated as investment warning or investment risk in the KOSPI, KOSDAQ, and KONEX markets.
An exchange official said, "We are improving regulations related to initial margin to foster an advanced capital market environment that meets global standards by rationalizing regulations related to the market alert system."
Earlier, in Dec. last year, as the domestic stock market surged, a mishap occurred in which KOSPI blue chips, including SK hynix, were successively designated as investment warning issues.
In fact, cases designated as market alert issues are also rapidly increasing this year. From Jan. 1 to Apr. 24 this year, there were 376 designations in the KOSPI market as investment caution, investment risk, or investment warning issues. That is a 135% surge from last year's 160 cases. The KOSDAQ market also rose 118%, from 698 last year to 1,523 this year.
After SK hynix was designated as an investment warning issue last year, the exchange believed that improvements to the market alert system were necessary and has been reviewing reforms. It explained that easing the 100% initial margin collection rule is part of that effort.
However, there is considerable concern about uniformly easing the 100% initial margin collection rule not only for the KOSPI but also for the KOSDAQ market. Because many KOSDAQ issues have small market capitalizations, their share prices are more volatile, and investment risk may be higher than for companies listed on the KOSPI.
In response, the exchange said that for issues deemed highly risky, securities firms can independently set higher initial margins, and sanctions such as bans on margin trading or disallowing substitute collateral will remain in place. The intent is to relax regulations while leaving in place securities firms' autonomous risk management framework.
An exchange official said, "While there are elements regulated by the exchange for issues designated under the market alert system, securities firms are already collecting initial margins at high rates on issues they independently deem risky."
Meanwhile, the exchange will gather opinions on the rule amendments through the 30th. The effective date has not been set precisely, but implementation could begin as early as May.