One Sunday night, I listened to the radio while working out at the gym. News of the slowing Korean economy streamed through my ears. Since what Koreans call the ‘IMF Crisis’ in the late 1990’s, the Korean financial market has flourished and become a global financial hub that attracts market participants with a lot of potential opportunities in the system. However, after the brutal strike of the global financial crisis in 2008, the incremental growth of the financial system and the market halted and began a downward trend that is still in process of a slow recovery. A number of effective measures constructed by the government, such as building a more strengthened fundamental to foster Investment Banks, instituting the ATS (Alternative Trading System) and instigating the process of making the KONEX and crowd funding-both for supporting middle and small class business, have taken place to boost the market thus far. Despite the effort of the authority, however, securities companies’ profitability has suffered from the slow economic recovery and dwindling transaction fees in the competitive market. The securities companies seem to have lost their vigor. But, to revitalize their profitability, now the FSC is taking steps in modifying the regulations upon their sales and introducing more flexible approval policies.
The prospective policies and directions that the FSC has prepared for the industry are as follows:
1. Depending on the risk taking ability in terms of capital capacity, lead big securities companies to aim to become investment banks; and SMB (Small and medium sized business) to grow to professional business models.
2. Strengthen the profitability by providing modified sales regulation and supporting them to become cost effective.
By allowing incorporation of specialized securities companies and spin-off, they will be able to separate their business units and turn them into specialized companies, thereby enabling more flexible restructuring and the diversification of their business portfolios as a whole. Also, in the process of strengthening domestic futures companies’ competence, futures companies will be able to mediate for certain over-the-counter commodity derivatives. This could allow them to satisfy risk-hedging demand the size of approximately 50 trillion won a year, generating new channel of profit of maximum 20 billion won. As for securities companies, in order for the securities companies to expand their service widely over the over-the-counter derivatives, the government this year instituted the CCP (Central Counter Party) that would bring them more lubricated and stable access to the over-the-counter derivatives market in the assistance of more flexible approval along with thorough examination over their risk-hedging ability.
Also, miscellaneous commissions associated with securities’ issuanceㆍlisting and deposits that securities companies pay will be reduced to soothe their financial burden. This support is expected to decrease approximately a total of 10 billion won in operating costs per year.
In the midst of a slowing global financial market, active support from the government is an important factor in the process of constructing a better financial business environment. With the measures listed above, market participants, especially securities companies, could have a more active attitude in the market. It’s imperative to make enhanced financial systems lead the Korean financial market to have less volatile and more stable fundamentals so that the pillars that prop the Korean economy are to be more consolidated.
Sang Hee Yu