Securities Companies Face Credit Transaction Limits as Debt Investment Frenzy Increases

As the balance of credit transaction loans soared to the 20 trillion won level, the limit of ‘debt to invest’ (investment by borrowing) of securities companies is rapidly decreasing.

As a result, Korea Investment & Securities completely stopped the service when the credit transaction limit was exhausted for the first time in the industry. Other securities companies are also moving to secure additional financing for margin trading by utilizing securities finance borrowings or equity capital.

Measures are also being taken to temporarily suspend margin transactions and mortgage loans for stocks with a large margin balance. Financial authorities are also keenly aware of the overheating of leveraged investments.

Securities companies quickly run out of credit transaction limits

According to the financial investment industry on the 25th, Hana Securities announced on the 28th that it would introduce distribution loans as a source of credit transaction.

distribution financingA securities company receives a loan from Korea Securities Finance Corporation and extends credit to investors. self-financingmeans giving credit with your own funds. Securities companies usually select one of the two and use it as a source of margin trading, and then switch to another source when the limit is exhausted.

This means that distribution loans, which Hana Securities has decided to introduce as a source of margin trading, will also be borrowed from securities finance to provide investors with buying and selling stocks.

Conversely, there are places that have decided to exhaust distribution loans procured from securities finance and give out credit loans with their own capital. From the 21st, NH Investment & Securities decided to change the financing source for margin trading from distribution financing to self-financing. IBK Investment & Securities also decided to use equity capital in future credit transactions after using up distribution loans.

The reason why securities companies hastily added finances for margin trading in succession is because the volume of credit trading has soared in the past few months. According to the Korea Financial Investment Association, as of April 21, the KOSPI and KOSDAQ credit transaction balance was tallied at 20.4 trillion won.

The balance, which was around 16 trillion won at the beginning of this year, entered the 18 trillion won level on March 22, and increased by nearly 2 trillion won in one month. As a result, places where the credit transaction volume reached the limit set by each company appeared. According to the Capital Markets Act, a comprehensive financial investment business operator must not exceed its equity capital in total credit extensions to individual customers.

In some places, new credit transactions or securities-collateralized loans were completely blocked. For the first time in the industry, Korea Investment & Securities has stopped accepting credit loan purchase orders and new depository-secured loans secured by stocks, bonds, ELS, and bonds.

However, it is possible to extend the maturity of existing loans and loan balances if the conditions are met. The reopening schedule will be announced through a later notice. An official from Korea Investment & Securities said, “We are using both distribution financing and self-financing, and the limit is full in both places. Looking at past cases, it usually took one to two weeks to resume.”

There are also places where credit transactions or loans have been suspended for some stocks with large margin balances. Samsung Securities, Kiwoom Securities, and eBest Investment & Securities suspended margin trading in eight stocks, including Sunkwang, Harim Holdings, Daesung Holdings, Sebang, Daou Data, Samchully, Seoul Gas, and Daol Investment & Securities.

What these stocks have in common is that their stock prices recently rose sharply, but on the 24th, SG Securities poured in sales and hit the lower limit. KB Securities announced that margin trading is not possible for Geumyang along with the eight stocks. Geumyang is a company to which IR director Park Soon-hyeok, known as ‘Battery Man’, belongs.

Mirae Asset Securities restricted margin trading for six stocks, including Seoul Gas, Samchully, Daoudata, Daesung Holdings, Harim Holdings, and Woorinet, and NH Investment & Securities restricted margin trading for three stocks, including POSCO DX, Posco Steelion, and R&2 Technology.

Authorities “Excessive leveraged investment, high risk of loss”

Such measures by securities companies mean that credit transactions have accumulated to a risk level. There is also a warning that market volatility may increase further.

An official from the financial investment industry said, “Since securities companies have stocks as collateral, they can recover funds through reverse trading, so the impact on the company’s financial stability is not large.” When the opposite trade is implemented, the stock price can fluctuate greatly,” he explained.

Financial authorities are also keeping an eye on the debt investment frenzy that is focusing on themed stocks. At the same time as sending a message to pay attention to credit transactions, he expressed his will to take strict measures against unfair trade related to theme stocks.

Lee Bok-hyeon, head of the Financial Supervisory Service, said at an executive meeting on the 25th, “There is a concern that the risk of loss due to excessive leveraged investment will increase in a situation where the stock and bond markets are highly volatile.” We need to be careful to make sure there is no such thing as unfair solicitation,” he stressed.

Director Lee continued, “In a situation where the stock market is abnormally overheated, such as a surge in credit transactions due to the investment craze for theme stocks for new growth businesses such as secondary batteries, there is a concern that unfair trade that abuses theme stock investment sentiment will become rampant.” He instructed the case where the allegation was witnessed to promptly launch an investigation.