South Korean brokerages have raised margin requirements on monthly stock savings plans to 100% as the local market swings between sharp selloffs and rebounds in a stretch of record volatility. Analysts see the move as effectively shutting off leveraged investing to reduce clients' exposure to risk, after price swings in individual stocks widened over a short period.
Mirae Asset Securities (006800) raised the margin requirement on its monthly savings plans for both Korean and U.S. stocks to 100% starting on the 20th, according to the financial investment industry on the 21st. The company had previously applied no margin requirement at all, meaning the threshold for investors has been raised substantially. The savings plans let investors set a fixed monthly amount and accumulate shares over time. When a brokerage sets a 100% cash margin requirement as a condition for signing up, investors can only buy shares automatically within the limits of the cash they hold. An official at Mirae Asset Securities said the step was taken "to protect investors by limiting leveraged investing."
Most brokerages have already taken similar steps. Kiwoom Securities (039490) last year expanded the margin requirement on its savings plans, previously applied only to Korean stocks, to U.S. stocks as well, restructuring the service so that it can be used with cash only. Larger firms including NH Investment & Securities (005940) and Korea Investment & Securities also run their plans with the requirement set at 100%.
Brokerages took the measures to reduce settlement risk from unsettled trades and to keep the plans true to their original purpose of stable, long-term investing. Applying a 100% margin requirement to the plans is expected to pre-empt situations in which a sharp drop in share prices or a delay in depositing additional funds leaves an unpaid balance that leads to a forced sale of the shares.
The move also reflects mounting concern about investor losses as the local market has extended its slide. An official at a major brokerage said that while a higher margin requirement cannot prevent the risk of losses on principal when share prices fall, it will reduce the chance that investors stretch beyond the amount they set in advance.