The amount of stock margin debt rolled over using ultra-short-term loans from securities firms exceeded 63 trillion won in the first eight months of the year. This represents a surge of 28 trillion won (77.7%) compared to the total annual volume last year.
As securities firms use this service to increase stock trading volume while also securing interest income, there are calls for integrated management of 'margin investing (investing with debt)' from an investor protection perspective.
According to documents submitted on the 7th by the Financial Supervisory Service to the office of Democratic Party of Korea lawmaker Park Hong-bae, a member of the National Assembly's Political Affairs Committee, the execution amount for the 'Auto-Execution Service for Loans Secured by Sale Proceeds' totaled approximately 63.5514 trillion won from January to August this year.
This is an increase of about 27.7912 trillion won compared to last year's annual execution amount of 35.7602 trillion won, and the total execution amount through December is expected to significantly exceed twice last year's figure.
The issue is that the auto-execution service for loans secured by sale proceeds is being used as a de facto ultra-short-term 'margin investing (investing with debt)' tool to roll over stock margin debt using proceeds from stocks sold by the investor.
This service automatically executes loans when an investor engages in margin trading, preventing their account from being set as a frozen margin account due to unpaid margin debt. If an account is designated as a frozen margin account, the investor must pay 100% of the entrusted collateral in cash within 30 days, and information about the frozen account is shared among all securities firms.
Currently, among the top 10 securities firms, Mirae Asset Securities, Kiwoom Securities, and KB Securities have introduced the auto-execution service for loans secured by sale proceeds (Maedamdae). In particular, at Kiwoom Securities, known as the 'No. 1 in retail,' the amount of Maedamdae automatically executed from January to August this year reached 58.9755 trillion won.
This is an increase of approximately 80% compared to last year's annual execution amount (32.7705 trillion won). Since the loan service is only implemented when margin debt occurs, this indicates that the amount of margin trading at securities firms has increased accordingly.
The amount of Maedamdae automatically executed due to margin debt also increased at Mirae Asset Securities and KB Securities. At Mirae Asset Securities, it rose from 2.6451 trillion won for the full year last year to 4.1493 trillion won in the first eight months of this year, an increase of approximately 57%. At KB Securities, it increased by about 24% over the same period, from 344.5 billion won to 426.6 billion won.
Another problem is that if investors continue to use the Maedamdae auto-execution service for so-called 'margin investing (investing with debt) roll-overs,' it will be difficult to escape the vicious cycle of ultra-short-term trading and high-interest rates. On online stock communities, inquiries and shared information regarding how to prevent margin account freezes by selling stocks after exhausting credit line limits and using margin debt, or failing to repay even that margin debt, are occurring frequently.
The activation of the auto-execution service is a kind of tailwind for securities firms. Before securities firms voluntarily lowered interest rates, Maedamdae interest rates were at levels of 8% to 10%. It was confirmed that one major comprehensive financial investment business (CFIB) earned approximately 670 million won in interest income from Maedamdae alone in the first half of this year.
There are also points raised that while securities firms are strengthening their own management of credit lines, they are insufficient to prevent the vicious cycle of ultra-short-term trading and 'margin investing (investing with debt)' linked by 'credit line - margin debt - Maedamdae.'
The Korea Financial Investment Association decided on the 1st of this month to reduce the credit extension limit of major securities firms to within 90% of their own capital (statutory limit is 100%), and from the 19th, to voluntarily manage the proportion of credit lines for specific stocks to within 15%. However, it was pointed out that a 'blind spot in margin investing (investing with debt) management' remains because this does not include margin trading and leverage products.
Harsh criticism also emerged from the National Assembly regarding the need for strengthened management by the industry and authorities. Park (Rep.) stated, "As loans secured by sale proceeds linked to margin trading are surging, we must grasp the current state of use and risk factors," adding, "Financial authorities should inspect margin trading and related loans as a whole and prepare an integrated management plan to prevent excessive margin investing (investing with debt)."
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