Regulator Eases Equity Capital Rules

By Park Hyong-ki

Staff Reporter

Financial authorities will ease regulations concerning the maintenance level of equity capital by securities and investment management companies.

The Financial Services Commission (FSC) said this is part of efforts to encourage companies to further engage in investment banking (IB) business.

It has revised laws regulating brokerages and other investment firms under the Capital Market Consolidation Act, which is set to be implemented in February next year. The FSC will publicize the revision over the next 20 days before legislating it.

First, it has dramatically relaxed rules governing securities companies in maintaining their net capital ratio (NCR), a measure of firms' indebtedness and liquid assets for financial soundness.

In case firms did not meet specific NCR requirements set by the regulatory body, they were prohibited to conduct a range of securities operations as a means to prevent defaults on the capital markets.

This strict rule on NCR made companies inactive toward operating other IB businesses such as mergers and acquisitions and principal investment (PI) in order to play by the book.

``With deregulation of the NCR system, we expect that securities companies will be actively involved in principal investment and M&As,'' said an FSC official.

Analysts forecast securities companies will be able to secure funds worth about 2.1 trillion won to conduct PI.

The FSC will also try to be flexible in rating securities firms' risk factors under the NCR system, meaning that the regulator will rate the companies in accordance to their soundness in risk management.

Also, the regulator will allow banking organizations for interest groups such as Nonghyup for farmers and Suhyup for fishermen to market equity funds, a move to increase fund accessibility for retail investors.

It will also remove barriers for such organizations to the bond market, allowing them to issue subordinated bonds and non-guaranteed bonds.

phk@koreatimes.co.kr