Daily average forced liquidations at major South Korean brokerages surged 13-fold from a year earlier in July as a market correction took hold, driven by a sharp rise in leveraged investing by individuals chasing high-risk, high-return bets during the stock market rally.
Forced liquidations tied to margin loans and securities-backed lending at 10 domestic brokerages averaged 2,258 accounts and 43.87 billion won ($31.7 million) a day in July, according to data submitted by the Korea Financial Investment Association to Rep. Park Sung-hoon of the People Power Party, a member of the National Assembly's National Policy Committee, on the 2nd. That compares with 622 accounts and 3.377 billion won in the same month last year — a 3.6-fold increase in accounts and a 13-fold jump in value.
The pace of increase accelerated sharply this year. Forced liquidations averaged 487 accounts and 2.947 billion won a day in January, more than doubled to 911 accounts and 8.274 billion won in May, and topped 20 billion won in June at 1,511 accounts and 20.414 billion won as the correction gathered pace. July's total is the highest since the data series began in 2022.
Forced liquidation is the process by which a brokerage sells a client's pledged shares to recover funds when the investor fails to repay borrowed money or when falling share prices push the collateral ratio below the required threshold. When such sales cluster during sharp declines, the resulting mechanical selling pressure adds to downward momentum in prices.
The number of individual professional investors also rose from a year earlier. Association data showed 26,282 individual professional investors as of the end of July, up 16.8%, or 3,787, from 22,495 at the end of last year. New registrations from January through July totaled 11,173, approaching the 12,228 recorded for all of last year.
Individuals can register as professional investors after a brokerage review if they meet thresholds for investment experience, income, assets and expertise. Registration grants access to high-risk products such as contracts for difference (CFDs), while protective rules that apply to retail investors are eased or waived.
"The fact that individual professional investors have surged by nearly 3,800 in just seven months is a signal that financial authorities must not take lightly," Park said. "It must not happen that investor protections are neutralized behind the name of professional investor, or that this is abused as a regulatory workaround for selling high-risk products." He added that "effective investor protection safeguards must be put in place quickly to prevent forced liquidations and cascading losses."
