The Korea Exchange has finalized the trading margin rate for the "Korean-style Business Development Company (BDC)" at 50%, opening the possibility of "margin transactions" that allow investors to purchase stocks worth up to twice their principal. While this could stimulate trading once BDCs are listed, concerns are emerging that, given the product's characteristics of investing in unlisted startups, low trading volumes and extreme volatility are expected—meaning that if margin transactions actually occur, forced liquidations could become rampant.
According to the financial investment industry on the 21st, the Korea Exchange recently revised its "Securities and Derivatives Market Margin Management Guidelines" and set the margin rate at 50% for non-monetary trust beneficiary certificates and investment contract securities within the new securities market. This measure is intended to designate margin rates for settlement risk management when BDCs are listed on the KOSDAQ in the future.
A BDC is a public fund that diversifies more than half of its assets into unlisted venture companies with high growth potential. Since the related system took effect in March this year, Shinhan Asset Management has launched the first product targeting professional investors such as corporations and institutions. The government plans to eventually list BDCs on the KOSDAQ market in the long term, making it easier for ordinary individual investors to engage in venture investment.
The Exchange drew a clear line, stating that "50% is merely a benchmark for trading margins to manage settlement risks with securities firms, and the final entrusted margin rate (whether margin trading is allowed) is determined by individual securities firms." The trading margin rate serves as a standard for market settlement risk management, not a direct mechanism regulating whether leverage is permitted. Actual entrusted margin rates vary by securities firm. Top-tier large-cap stocks such as Samsung Electronics and SK Hynix can be purchased with only a 20% margin. For major KOSDAQ stocks, margin rates of 40-60% are common. For high-risk products such as leveraged ETFs or investment-warning stocks, a 100% margin rate applies.
However, some voices argue that since BDCs are structurally risky new products, the Exchange should set the trading margin rate at 100% to fundamentally block the possibility of margin transactions. If the trading margin rate is 100%, it effectively prevents each securities firm from offering an entrusted margin rate below 100%. The unlisted company stakes held by BDCs are difficult to value, and while startups have high growth potential, they also have high failure rates. If BDCs are listed on the KOSDAQ, there is a strong likelihood that trading volume will be insufficient compared to regular stocks, similar to Special Purpose Acquisition Companies (SPACs). Analysts say that with significant room for sharp price fluctuations, the likelihood of forced liquidations is high if margin transactions are allowed.
Recently, global credit rating agency Moody's downgraded its credit rating outlook for U.S. BDCs from "stable" to "negative." The Korean National Assembly also views BDCs as "high-risk products." At the Tax Subcommittee meeting of the National Assembly's Strategy and Finance Committee held on the 10th, tax support measures for BDCs were excluded from the agenda, citing the long recovery period and high uncertainty of venture investments. A securities firm official said, "U.S. BDCs also have margin rates around 50%, but they're in a different league. Since it's a risky new product, there's a high possibility that securities firms will block margin transactions on their own when it's actually listed."
