South Korea to Ease Margin-Loan Collateral Rules to Curb Forced Selling After Stock Rout

Relief on forced selling to take effect from Nov. 9

Additional stabilization steps ready if volatility worsens

South Korea’s government will temporarily ease collateral rules on margin loans as it moves to break a vicious cycle of falling share prices and forced selling in the stock market. Starting Nov. 9, securities firms will be exempt for three months from the requirement to maintain collateral ratios, reducing pressure from forced liquidation.

Vice Prime Minister and Finance Minister Lee Hyeong-il chaired a joint market-monitoring meeting at the government complex in Seoul on Nov. 6 to discuss the response. Attendees included Financial Services Commission Chairman Lee Eok-won, Financial Supervisory Service Governor Lee Chan-jin, and Bank of Korea Deputy Governor Kwon Min-su.

Under the measure, securities firms will be temporarily exempt from the obligation to keep margin-loan collateral ratios at 140%. When share prices plunge and collateral values fall, brokerages forcibly sell investors’ holdings to recover loans. The government aims to ease the additional downward pressure created when those sales flood the market.

Officials judged that South Korea’s stock market has fallen too far relative to the economy’s underlying strength. They said the market has been hit by the possibility of tighter regulation on AI data centers after the U.S. midterm elections and by weaker global risk appetite, but that domestic equities appear to be reacting excessively to external shocks.

Participants cited forecasts that economic growth will reach the mid-3% range this year, while exports will exceed $1 trillion and corporate operating profit will top 900 trillion won ($646 billion). They agreed that, with economic conditions still solid, investors should guard against excessive pessimism driven by market anxiety.

The local stock market extended its slide for a second day. The Kospi, which fell 5.28% a day earlier, dropped below 5,000 at one point in morning trading, triggering a circuit breaker. Trading on the KOSPI market was halted for 20 minutes, and the index stood at 5,075 as of 11 a.m. A sell-side sidecar, which temporarily suspends the effect of program sell orders, was also triggered on the Kosdaq market.

Overnight on Wall Street, the Nasdaq fell 5.52%, the S&P 500 dropped 4.36%, and the Dow Jones Industrial Average lost 3.44%. The Philadelphia Semiconductor Index tumbled 12.25%. Selling pressure intensified in South Korea and abroad as worries over a slowdown in AI investment spread through chip stocks.

The government and related agencies said they will monitor stocks, foreign exchange, bond markets and funding flows in real time. They also plan to track the global semiconductor cycle and policy changes in major economies, and prepare additional stabilization measures if market volatility worsens further. Policies to raise corporate value and restore confidence in the capital market will also proceed in parallel.