"Securities Firms' Margin Loan Interest Rates Unified to CD Rates"

Revision of the "Model Guidelines for Loan Interest Rate Calculation by Financial Investment Companies"
Mandatory Review of Interest Rate Changes upon CD Rate Fluctuations

Going forward, the benchmark interest rate for margin loan interest rates will be unified to the CD rate, which has a high correlation with securities firms' funding costs. Additionally, if the CD rate fluctuates by more than 0.25 percentage points, a review of the margin loan interest rate change must be conducted.

On the 18th, the Financial Supervisory Service announced that it had revised the "Model Guidelines for Loan Interest Rate Calculation of Financial Investment Companies" with these contents. Accordingly, the Korea Financial Investment Association plans to give prior notice of the model guidelines in February and complete the revision by March.

The revised guidelines unify the disclosure benchmark interest rate for margin loans to the CD rate. Under the current model guidelines, securities firms autonomously select the benchmark interest rate. Because they choose indicators that appropriately reflect actual funding costs as the benchmark, many securities firms set corporate bonds, financial bonds, etc., as the benchmark interest rate. These securities firms incurred significantly higher risk premiums when calculating interest rates compared to those applying the CD rate.

As a result, there have been continuous criticisms that securities firms' margin loan interest rates do not adequately reflect market interest rate trends. Once the revision of the model guidelines is completed, it is expected that the final interest rate differences can be easily compared using only the spread.

Also, if the CD rate changes by 25 basis points (1bp = 0.01 percentage points) or more, an interest rate change review must be conducted. Until now, detailed items of the benchmark rate and spread were recalculated monthly or quarterly, making it impossible to promptly reflect market interest rates in the interest rates. Going forward, market interest rate fluctuations according to market conditions are expected to be properly reflected.

In addition, a conditional search function will be added to the margin loan interest rate comparison disclosure. The calculation results will be sorted in order of securities firms with lower cost burdens, allowing investors to easily identify the most favorable securities firms at a glance.

The Financial Supervisory Service stated, "It is expected that healthy competition among securities firms will be promoted in the future, and through this, margin loan interest rates will be calculated more rationally."