2011/07/26 16:00 KST

(2nd LD) S. Korea set to introduce big investment banks

By Lee Minji SEOUL, July 26 (Yonhap) -- South Korea will seek to permit the establishment of large homegrown investment banks within this year, which will engage in financing mergers and acquisitions and trading in unlisted stocks, the financial regulator said Tuesday. Under a revision bill to the capital market law, brokerages with an equity capital over 3 trillion won (US$2.8 billion) will be allowed to become investment banks, the Financial Services Commission (FSC) said. The average equity capital of the country's top five brokerages stood at 2.7 trillion won as of end-March, around one-thirtieth of that of investment giant Goldman Sachs Group Inc. The five local heavyweights include Daewoo Securities Co., Samsung Securities Co., Hyundai Securities Co., Woori Investment & Securities Co. and Korea Investment & Securities Co. The FSC said it expected the law revision to bolster direct financing of small and mid-size companies and support local firms' efforts to secure funds for major overseas project deals. The regulator plans to start receiving public comment on the law amendment before submitting the bill to the National Assembly for approval in October. "The revision bill is aimed at countering the changes in the global financial environment following the 2008 global financial crisis and bolstering the local capital market," Hong Young-man, a standing commissioner at the FSC, said in a press conference. Hong projected the country's first investment bank to begin operations at the end of June next year after a six-month preparation period, if the National Assembly passes the revision near the end of this year. Last week, FSC Chairman Kim Seok-dong told reporters that a new policy direction on the capital market law is essential to the future of the local financial industry, adding that the regulator will strive to ensure that the capital market law will create explosive energy as originally planned. South Korea enforced the capital market law in 2009 to help create globally competitive financial giants by abolishing regulatory barriers banning brokerages from pursuing future trading and other asset management operations. Market watchers, however, had highlighted the need to update the act to reflect changes in the global financial environment. The revision bill also calls for allowing the establishment of an alternative trading system (ATS) in a bid to beef up global competitiveness of the Korea Exchange (KRX), the nation's sole bourse operator. The introduction of ATS is projected to cut trading costs and increase investment options for investors, which is likely to spur market competition and reinforce the KRX's competitiveness, the watchdog said.

The minimum equity capital needed to establish an ATS would be 50 billion won, according to the watchdog. Individuals will be allowed to own up to 15 percent of an ATS, and financial firms will be allowed to hold up to 30 percent of the trading platform upon FSC approval. The financial regulator said it may consider allowing the KRX to own alternative trading platforms as subsidiaries. The FSC also said the introduction of ATS is an inevitable global trend. Around 120 alternative trading systems are in operation across the world, with stock trading via ATS accounting for 42 percent of all stock trading in the United States. Stock trading via ATS reached only 1 percent in Asia last year, but a growing number of countries such as Australia and Singapore have adopted the system. "ATS is an international trend. the KRX will also step up efforts to improve the quality of its services, but at the same time we believe the government should curb excessive establishment of alternative trading platforms in the beginning stage," said Park Jong-kil, chief finance officer at the bourse operator. Meanwhile, the financial regulator also pledged to step up investor protection by tightening regulations and expanding penalty policies on unfair market practices, such as stock price manipulation and scalping. The measure was designed to prevent overseas investment banks and hedge funds from taking advantage of the country's relatively lax regulations on price manipulation, it said. Shares of major securities firms closed sharply higher on hopes the revision would create new profit sources. Samsung Securities surged 5.28 percent to 79,700 won and Woori Investment & Securities jumped 4.66 percent to 19,100 won. Daewoo Securities climbed 4.01 percent to 19,450 won and Hyundai Securities gained 3.16 percent to 13,050 won. "Investor sentiment on the government's stance to focus on top-tier brokerages is not bad," said Kim Ji-hyun, an analyst at HI Investment & Securities Co. "The top firms may face burdens on raising capital, but they are likely to benefit in the long term." mil@yna.co.kr (END)