South Korea to Ease Margin Collateral Rules to Break Cycle of Forced Selling After Stock Plunge

Measure takes effect Nov. 9 to ease pressure from forced selling

More market-stabilization steps ready if volatility worsens

South Korea will temporarily ease collateral rules on margin lending to break the vicious cycle of falling share prices and forced selling in the stock market. Starting Nov. 9, the government will suspend for three months securities firms’ obligation to maintain a 140% collateral ratio, lowering the risk of forced liquidations.

Acting Deputy Prime Minister and Finance Minister Lee Hyung-il chaired a joint meeting on market conditions at the Government Complex Seoul on Nov. 6 to discuss the response. Also attending were Financial Services Commission Chairman Lee Eok-won, Financial Supervisory Service Governor Lee Chan-jin and Bank of Korea Deputy Governor Kwon Min-soo.

The measure temporarily exempts securities firms from the requirement to maintain a 140% collateral ratio on margin loans. When a sharp drop in share prices erodes collateral value, brokerages forcibly sell investors’ stocks to recover loans. The government aims to ease the flood of sell orders that can accelerate further declines.

Authorities said the domestic stock market has fallen more sharply than economic fundamentals warrant. They cited concerns over possible regulation of AI data centers after the U.S. midterm elections and weaker global investor sentiment, while saying the Korean market has also overreacted to external shocks.

Participants pointed to forecasts that South Korea’s economic growth will reach the mid-3% range this year, while exports and corporate operating profit will top $1 trillion and 900 trillion won ($646.6 billion), respectively. With economic conditions still solid, they agreed investors should guard against excessive pessimism driven by market anxiety.

South Korea’s stock market tumbled for a second straight day. The Kospi, which fell 5.28% the previous day, briefly dropped below 5,000 in morning trading on Nov. 6, 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 program trading curb was also triggered on the Kosdaq market.

On Wall Street overnight, the Nasdaq fell 5.52%, the S&P 500 lost 4.36% and the Dow Jones Industrial Average dropped 3.44%. The Philadelphia Semiconductor Index slumped 12.25%. Selling pressure intensified in domestic and global equities as worries spread, led by semiconductor shares, that AI investment may slow.

The government and related agencies said they will monitor not only stocks but also the foreign-exchange and bond markets, along with funding flows, in real time. They also plan to review changes in the global semiconductor cycle and major economies’ policies, and prepare additional stabilization steps if market volatility worsens further. Measures to boost corporate value and restore confidence in capital markets will proceed in parallel.