South Korea exempts securities firms from 140% margin collateral duty

South Korea will exempt securities firms from the 140% collateral-maintenance requirement on margin loans for three months, the Financial Services Commission (FSC) said on 6 November. The decision was taken at an emergency inter-agency market situation meeting chaired by Deputy Prime Minister and Minister of Economy and Finance Lee Hyung-il, attended by FSC chairman Lee Eok-won, Financial Supervisory Service governor Lee Chan-jin and Bank of Korea deputy governor Kwon Min-su. It took effect on 9 November.

For securities firms, the change is an immediate temporary adjustment to a margin risk control. Compliance and risk teams should identify the affected margin-loan books, update collateral monitoring and liquidation workflows for the exemption period, and document how client communications and escalation processes operate while the 140% obligation is suspended. The announcement identifies the ratio, product and three-month period, but does not set a replacement ratio or provide detailed operating instructions.

A targeted anti-liquidation measure

The stated purpose is to prevent sharp falls in share prices from triggering excessive forced sales that would amplify volatility. The FSC said the agencies would continue real-time monitoring of domestic and foreign equity markets and capital flows, while watching excessive investor anxiety and concentration in supply and demand.

The measure does not amount to a general suspension of margin controls. It covers the securities firms’ maintenance obligation for collateral ratios on margin loans. The agencies also said they would prepare further market-stabilisation measures if volatility increases.

The market data cited in the official release show the pressure behind the decision. The KOSPI fell from 6,838 points on 30 September to 5,731 on 30 October, 5,384 on 5 November and 5,075 at 11:00 on 6 November. On 5 November, the Nasdaq fell 5.52%, the S&P 500 4.36% and the Philadelphia Semiconductor index 12.25%. The FSC attributed the falls to global investor sentiment and policy uncertainty around the artificial intelligence sector, including concerns over AI data-centre regulation.

The meeting participants nevertheless said Korea’s economic fundamentals remained strong, citing projected growth in the mid-3% range, exports reaching $1tn and corporate operating profit exceeding KRW900tn.

Relief from volatility, not from conduct supervision

The timing shows a two-track supervisory posture. On 4 November, the FSC imposed final surcharges and fines totalling about KRW370bn on seven banks and six securities firms over improper sales of Hong Kong H-Index equity-linked securities. The margin waiver therefore addresses procyclical liquidation risk without signalling a retreat from conduct enforcement.

Atlas reads the decision as a temporary macroprudential brake rather than a change to the underlying risk appetite expected of securities firms. Firms should keep client-level credit assessment, exposure monitoring and governance records distinct from the temporary relief, and be able to show which positions and processes were affected.

The FSC and other agencies will continue monitoring global semiconductor-sector developments, major-country policies, equity markets and funding flows. The exemption is already in force from 9 November, with additional stabilisation measures to be prepared if volatility expands further.