The South Korean financial authority will allow local brokerages with 4 trillion won ($3.6 billion) or more equity capital to issue commercial papers with a maturity of less than one year as much as twice its net worth from early next year, in a move to foster the growth of large-sized investment banks in the country.

The Financial Services Commission (FSC) said on Tuesday that it will also allow securities firms with 8 trillion won or more equity capital to launch investment management accounts (IMA), in which they can add up individual customers’ savings without limit and provide loans to corporations. The measures were announced by the FSC as part of its plan to nurture Korea’s own mega-sized investment banks.

Other measures include permitting brokerages to expand corporate currency exchange services and manage real estate investment trusts. The FSC is expected to revise the country’s capital market law in the second half of this year to enable new services at brokerage houses from April next year.

Currently, only two securities firms in the country - NH Investment & Securities Co. and Mirae Asset Daewoo Securities Co. - will likely benefit from the amended law as they each have 4 trillion won or more equity capital. KB Investment & Securities Co. is expected to be the third brokerage firm benefiting from the measures once it completes a merger with Hyundai Securities Co. in the end of the year.

Kim Tae-hyun, director of the capital market bureau at the FSC, said the government’s mid- to long-term goal is to foster the development of an investment bank with 10 trillion won or more equity capital in the country.

With an ability to issue commercial papers, brokerage firms with 4 trillion won or more equity capital will be able to constantly raise funds from multiple investors. If they spend more than 50 percent of the funds on corporate financing, the amount will be excluded from total debt. The FSC will also permit them to service not only corporate foreign exchange futures but also foreign exchange spot transactions.

On top of these new services, securities firms with 8 trillion won or more equity capital will be able to launch IMAs and engage in real estate trust business. An IMA is a financial product that provides relatively higher interest to investors using various investment instruments. It is not subject to leverage regulation unlike repurchase agreements (RP) or equity-linked securities (ELS), allowing brokerage firms to secure more funds for corporate loans.

The FSC plans to introduce more incentives to lure brokerage houses to grow their businesses to become mega-sized investment banks.

By Choi Jae-won

[ⓒ Pulse by Maeil Business News Korea & mk.co.kr, All rights reserved]