The average daily amount of forced liquidation of unsettled accounts this month was larger than in March, when the U.S.-Iran war broke out. After the KOSPI index hit 8,000 points in May and then plunged immediately, showing a roller-coaster market, forced liquidations appear to have surged.
According to statistics from the Korea Financial Investment Association on the 23rd, the average daily amount of forced liquidation over 13 trading days in May was 47.6 billion won. That is close to four times the previous month's average daily amount. In April, the actual forced liquidation amount relative to unsettled accounts from brokerage transactions averaged 12 billion won per day. The ratio of forced liquidations to average unsettled accounts also jumped from 1.1% in April to 3.2% in May.
This is higher than in March, when there was the U.S.-Iran war shock. In March, the actual forced liquidation amount relative to unsettled accounts from brokerage transactions averaged 26.2 billion won per day, and the ratio of forced liquidations to average unsettled accounts was 2.1%. The Korea Financial Investment Association statistics tally only forced liquidations of unsettled accounts, so if forced liquidations from margin transactions are included, the total is expected to be larger.
Unsettled-account trading is a transaction in which an investor borrows money from a brokerage to buy stocks and repays within two trading days (T+2), the domestic stock settlement period; unsettled accounts from brokerage transactions are ultra-short-term "debt investing (investing with borrowed money)" funds that must be repaid within three days. If the investor fails to pay within two trading days, the brokerage forcibly disposes of the shares.
In particular, the amount of forced liquidation that burst out on the 20th alone was tallied at 145.8 billion won. This was the largest since Oct. 2023, when the KOSPI index plunged more than 15%. In just four trading days (the 18th to the 21st), 367.7 billion won in forced liquidations occurred.
On the 20th, when a large volume of forced liquidations hit, the KOSPI index fell 0.86%. The day's decline was not large, but earlier, on the 15th, the KOSPI index had plunged 6.12%, and it fell another 3.25% on the 19th. As investors who failed to meet collateral ratios by the settlement date after the earlier stock price slump piled up, forced liquidations appear to have poured out on the 20th.
On the 3rd and 4th of March, the KOSPI index fell more than 18.43% over two days, raising fears of forced liquidations. However, on the 5th and 6th, when forced liquidations were carried out, the actual amount relative to unsettled accounts from brokerage transactions was about 77.7 billion to 82.4 billion won. The market also expressed relief that forced liquidations were not as large as expected.
Although the scale of forced liquidations surged this month due to sharp market swings, some say there has not yet been a flood of large-scale liquidations. A securities industry official said, "There have been sharp swings in the KOSPI index recently, but there has been no talk of large-scale forced liquidation unwinds."
However, with debt-investing funds having swelled significantly, there is a high chance of forced liquidations if the KOSPI index plunges going forward. As of the 21st, margin lending balances stood at 3.64723 trillion won, and unsettled accounts from brokerage transactions totaled 1.6598 trillion won.