Brokerages Challenge Banks in Currency Business
By Park Hyong-ki
Staff Reporter
Securities companies are revitalizing their foreign exchange (FX) teams to boost transaction services to customers, ahead of the capital market deregulation.
This comes as the financial authority is moving to allow brokerage houses to freely offer a wide range of services dealing with currency transactions and derivatives trading to individual investors and clients.
This poses a major challenge to banks, which have long held dominance over FX transactions both on the traded and over-the-counter (OTC) markets.
Goodmorning Shinhan Securities said its FX division is preparing to offer transaction services and derivatives instruments to corporate customers by the year's end.
``We plan to do so as it is likely to boost synergy with other internal business teams,'' said a spokeswoman of Shinhan.
Until now, the brokerage has only internally dealt with FX transactions through principal investment, without providing external services.
The current FX Transaction Law allows securities firms to offer currency trading services only to corporate clients. They need to acquire a regulatory license before offering such services to individual or retail customers.
Also, brokerages that hold an OTC derivatives license can practice currency swap and spot trading through banks, but not for corporations.
Woori Investment & Securities has been trading such FX derivatives instruments as it holds not only the OTC license but also a merchant banking license.
Although its merchant banking license enables the firm to deal FX transactions for corporations and individuals, Woori said many seemed to have opted for banks.
``It's because securities companies have a lower credit rating than banks,'' said a broker for Woori Investment.
However, capital deregulation is expected to increase the number of customers flocking to brokerages for FX transactions.
Tong Yang Securities, holder of a merchant/investment banking license, said it will boost its services to individuals on expectation of an increase in investment in overseas equities or fixed-income securities.
``It's possible that the company can boost its FX services, while there is an increase in the number of overseas investment by individuals,'' said a manager at Tong Yang.
The firm can currently conduct forward exchange transactions for retail customers investing in overseas stocks or bonds through mutual funds.
Other securities companies such as Kiwoom, Meritz, LIG and Dongbu are considering launching currency transaction services in the near future.