Korea Exchange. [Photo by Sangyeop Oh]
The Korea Exchange has announced proposed rule changes to exempt market alert-designated stocks on the KOSPI, KOSDAQ and KONEX from a requirement to collect consignment margin.
According to the Korea Exchange (KRX) on Thursday, the exchange announced the previous day proposed changes to exempt KOSPI-listed market alert stocks from the current requirement to collect 100 percent cash consignment margin.
Consignment margin is a trading deposit investors place with brokerages when buying shares, and is used to limit margin and unpaid trades.
The proposed revision would remove investment warning stocks and investment risk stocks from the list of categories in Article 89, Paragraph 5 that are specified as subject to the 100 percent consignment margin requirement, among ‘investment warning stocks, investment risk stocks and investment caution stocks.’
The exchange explained that the move is intended to create an advanced capital market environment in line with global standards by rationalising regulations related to the market alert system. It added that foreign, retail and institutional investors have raised concerns that the rules are excessive compared with global standards.
The exchange has been reviewing improvements to the system after calls grew that the rules were excessive following the designation of SK Hynix as an investment warning stock in December last year. It said it is pursuing the easing of the 100 percent consignment margin requirement as a first step.
On heightened concerns about overheating in the market, with debt-fuelled stock buying hitting a record high, it said it judged there would be no problem with curbing overheating because there are sanctions other than consignment margin, including trading halts, bans on credit trading and non-recognition of substitute securities.
The exchange also announced it will delete a rule in KOSDAQ market regulations (Article 42, Paragraph 9) that requires brokerages to collect the full purchase amount as consignment margin when taking buy orders for investment warning stocks and investment risk stocks. It will collect opinions on the change through April 30 and plans to implement it as early as next month.
Separately, the Korea Financial Investment Association said the outstanding balance of credit financing in South Korea’s stock market, a gauge of debt-fuelled stock buying, surpassed 34 trillion won for the first time on April 17 when combining the KOSPI and KOSDAQ markets.