South Korea Watchdog to Focus on Note Maturity Mismatches, Says No Decision on SpaceX Retail Allocation

South Korea’s Financial Supervisory Service said it will closely monitor maturity mismatches tied to promissory notes issued by major investment firms after rapid growth in outstanding issuance fueled investor concern. The regulator also said no decision has been made on Mirae Asset Securities Co.’s plan to allocate shares in a SpaceX offering to retail investors in South Korea.

Hwang Sun-oh, senior deputy governor at the Financial Supervisory Service, said at a capital-markets briefing on May 11 that comprehensive financial investment businesses need tighter screening from the initial investment stage to keep supplying high-quality risk capital to the capital market. He also called for stronger risk-management capabilities for venture-capital investment assets.

The notes mature in less than one year, but more than 50% of the funds raised must be invested in corporate-finance-related assets, prompting concerns about funding and asset maturity mismatches at repayment. According to the FSS, outstanding promissory notes issued by these firms jumped to 54.4 trillion won ($39.4 billion) as of the end of March from 15.6 trillion won at the end of 2020.

The regulator currently requires a liquidity ratio of at least 100% for both promissory notes and Investment Management Accounts, or IMAs, Hwang said. It also adds a set amount to liquid liabilities when calculating each firm’s overall liquidity ratio.

Because a substantial share of funds raised through promissory notes or IMAs must be invested in corporate finance, firms cannot overlook liquidity management, he said. The regulator applies liquidity rules both at the company-wide level and to promissory-note programs themselves.

As of the end of March, the overall liquidity ratio was about 115%, while the liquidity ratio for promissory notes alone stood at 163%, a very healthy level, Hwang said. He added that the FSS plans to help firms conduct their own stress tests and establish contingency funding plans, while also preparing best-practice guidelines on corporate credit provision.

The watchdog also said it will take preemptive, firm-by-firm steps to manage risks from a surge in margin lending and maintain market stability.

Margin loans as a share of market capitalization stood at 0.58% at the end of April and have been gradually declining, the lowest level in five years and within a manageable range, Hwang said. Even so, outstanding margin lending increased by 8.4 trillion won to 35.7 trillion won last month from 27.3 trillion won a year earlier.

During a stock-market decline in early March triggered by the Middle East war, one-day forced liquidations totaled 108.4 billion won ($78.5 million), or 22 times last year’s daily average, he said. That shows losses can deepen during market corrections. He added that the regulator will discuss institutional changes aimed at fostering a culture of long-term investing rather than short-term trading gains.

On Mirae Asset Securities’ plan to allocate shares in a SpaceX public offering to South Korean retail investors, Hwang said nothing has been decided.

Mirae Asset has not yet determined how it will proceed, leaving authorities unable to make a decision as well, he said. Because the matter became public before a specific structure or legal consultations were finalized, the regulator asked Mirae Asset Securities to refrain from publicizing it further.

Responding to concerns that single-stock leveraged exchange-traded funds tied to Samsung Electronics Co. and SK Hynix Inc., due to launch later in May, could amplify share-price volatility, Hwang said their introduction was unavoidable to improve consistency with global regulations. He added that the regulator plans to provide investor education before launch and then continue monitoring trading patterns and market trends to prepare response measures.

Noh Jeong-dong, Hankyung.com reporter dong2@hankyung.com