[Aftermath of SG] Stop the Spread of 'Debt Investment' and 'SG-Originated Risks'... Preemptive Measures Including Suspension of Credit Loans

Emergency Meeting Between FSC and Securities Industry CEOs
Warning on Excessive CFD Leverage and Margin Trading Loans
Securities Firms Take Measures Such as Halting Credit Loans and Raising Margin Requirements

This morning (the 28th) at 10 a.m., the Financial Supervisory Service (FSS) will hold an emergency meeting with CEOs of securities firms. Presided over by Deputy Governor Ham Yong-il of the FSS, the meeting will include the Deputy Director of the Financial Investment Division, the Director of the Capital Market Supervision Bureau, the Director of the Financial Investment Inspection Bureau, as well as Seo Yoo-seok, Chairman of the Korea Financial Investment Association, and CEOs and executives from 34 domestic securities firms. Deputy Governor Ham is expected to request thorough risk management regarding credit provision to individual investors and contracts for difference (CFD).

Earlier, on the 25th, the day after the 'SG Securities-triggered crash' caused numerous stocks to hit their lower price limits, FSS Governor Lee Bok-hyun stated, "Since the beginning of this year, the stock market has been abnormally overheated, especially in the KOSDAQ, due to an investment frenzy in future growth new business theme stocks such as secondary batteries, leading to a rapid increase in margin trading," and urged, "Please ensure thorough investor protection by promptly investigating and strictly punishing stocks suspected of unfair trading."

Since then, securities firms have taken preemptive measures. On the 24th, Mirae Asset, Samsung, Kiwoom, NH, and Hana Securities excluded Daol Investment & Securities, Samchully, Daesung Holdings, Seoul Gas, Sebang, Harim Holdings, Seonkwang, and Dow Data?stocks that hit the lower price limit related to the SG Securities crash?from margin loans and collateral loans. They also strengthened the collection of initial margins to 100%.

They have also taken steps to curb 'debt investment' in secondary battery-related stocks that surged sharply. Samsung Securities included seven secondary battery-related stocks, including the leading secondary battery stocks Ecopro BM and Ecopro, in the list of stocks ineligible for margin loans and changed the margin rate to 100%. A Samsung Securities official explained, "In a situation where market volatility is increasing, we have independently selected some stocks and suspended margin loans to protect investors."

NH Investment & Securities also suspended margin loans for Aekyung Chemical, a secondary battery theme stock, in addition to stocks hitting the lower price limit, and raised the margin rate to 100%. POSCO DX, POSCO Steelion, and RN Technology, affiliated with POSCO, are also currently restricted from credit provision and unsettled transactions.

KB Securities has suspended securities-backed loans for stocks, funds, and equity-linked securities (ELS) and reduced the margin trading limit to 500 million KRW. This is a measure to comply with the credit provision limits stipulated by the Capital Markets Act.

Stocks with Credit Balance Ratio Over 10%: 9 Last Year → 21 This Year

The securities industry is currently sounding a 'debt investment warning.' The number of stocks with a credit balance ratio exceeding 10% has more than doubled this year, increasing the likelihood of a supply-demand backlash.

The current number of stocks with a credit balance ratio over 10% has reached 21, more than double the 9 at the end of last year. The number of stocks with a credit balance ratio over 5% also reached 269. Notably, a large proportion are KOSDAQ stocks. Among all stocks with a credit balance ratio over 10%, 13 are KOSDAQ stocks, and among those over 5%, 228 are KOSDAQ stocks. So-yeon Park, a researcher at Shin Young Securities, said, "The fact that the increase in margin loans this year accounts for half of the net buying amount by individuals means that short-term leverage betting has had a significant impact on the KOSDAQ market's strength," warning, "If a sudden liquidation of margin loans occurs, the backlash could be severe."

Investor protection measures do not stop there. The FSS is intensively cracking down on companies that add popular new businesses such as secondary batteries, artificial intelligence (AI), and robotics to their business objectives but fail to report progress. They will mandate progress reporting in the future and strengthen monitoring of unfair trading related to theme stocks. An FSS official explained, "During periods when theme stocks related to specific businesses are popular, there is a high possibility that unfair trading groups exploiting the theme stock fever will become rampant, so it is necessary to strengthen disclosure review and investigations for investor protection."

105 Listed Companies Added Secondary Batteries, AI, etc. to Business Objectives

According to the FSS investigation, in the past year (2022 to March 2023), 105 newly listed companies added secondary batteries, artificial intelligence, and robotics-related businesses to their business objectives. Notably, 59 companies amended their articles of incorporation last year. This year, 46 companies have changed their articles of incorporation as of March. Among the 105 companies, 91 are KOSDAQ-listed. The largest number, 54 companies, added secondary battery businesses, followed by artificial intelligence (38 companies) and robotics (21 companies).

Accordingly, newly added businesses in the articles of incorporation will be required to mandatorily include progress reports (including plans and reasons for non-progression) in subsequent regular reports. Business areas requiring investment caution, such as secondary batteries, will be separately selected for focused inspection of reported items. Among stocks that added new businesses unrelated to their existing core businesses, if there is abnormal stock price surges, sales of shares by major shareholders, or issues regarding actual business progress, and if there is suspicion of unfair trading, prompt investigations will be initiated.

An FSS official urged, "Adding a business objective in the articles of incorporation does not guarantee actual promotion or revenue generation of the new business, so general investors should carefully consider the connection with existing core businesses and whether concrete business plans have been established before deciding to invest."

The FSS also issued a stern warning to listed companies. An FSS official emphasized, "If a company deceives investors by pretending to enter a new business without the intention or capability to pursue it and uses this for trading financial investment products, it may constitute fraudulent trading under the Capital Markets Act," and urged, "Listed companies intending to pursue new businesses should exercise caution in disclosures and media promotions related to business progress."