ANALYSIS Regulators urged to lower bar to stimulate IMA market
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8 tril. won entry bar for IMA market hinders IB growth
By Anna J. Park
In the over seven decades of the country's brokerage industry history, Mirae Asset Securities has become the first brokerage company with more than 10 trillion won ($8.5 billion) of owned capital.
The firm's proprietary capital size exceeded 10.04 trillion won as of the end of the second quarter this year, the largest among local brokerage companies. The company, launched in 1999 with 50 billion won of capital, has grown 200 times since.
Korea Investment & Securities, as well as NH Investment, are chasing Mirae Asset's lead, as both companies' owned capital exceeded the 6 trillion won mark at the end of the second quarter.
Other firms, such as Hana and Kiwoom, have also been expanding their proprietary capital aggressively through needs-based capital increases over the past couple of years. Hana Financial Investment recently entered into the stage of having owned over 5 trillion won ii capital, while Kiwoom is also nearing the 4 trillion won mark.
This scaling up of local brokerage companies is proving how the financial authorities' years of incentives to nurture the nation's securities companies into a large-sized investment banking industry have somewhat paid off. Aiming to boost the brokerages' credit offerings to a wide range of local businesses, financial authorities have provided regulatory incentives to the sector.
Indeed, it is true that their achievements in both the equity capital market (the market for trading equities and raising money for companies) and the debt capital market (for trading debt securities such as bonds and loans) have been registering huge growth over the years.
Although still lacking in competitiveness compared to the major players in the global investment banking industry, the local brokerages that have investment banking departments have actively participated in a series of successful IPOs, M&A deals and overseas sourcing and investment deals.
They have now become the main underwriters for the issuance of dollar-nominated corporate bonds for Korea-headquartered global companies, which has long been a sphere dominated by investment banking companies based abroad.
However, the investment management account (IMA) market is still a new field for local companies. An IMA is a brokerage account through which securities firms invest customers' deposited money into various investment banking assets, aiming to funnel investors' money into companies that are in need of capital.
Back in 2016, the government started allowing brokerages to operate in the IMA business, if their owned capital exceeded 8 trillion won. The year after that, related Capital Act regulations were also revised to back up the newly adopted system. Five years have passed since then, and no specific measures have been devised by either the financial authorities or the brokerage companies.
IMAs only encourage corporate activities by funding them but also strengthen the depository business of brokerages. The account model has been hailed as a key to cultivating large investment banking companies in Korea. Yet, in the five years since the Capital Act was revised, little has happened in this area.
Some market watchers pointed out the need to lower the 8 trillion won threshold for offering IMAs. Five years after the introduction of the threshold, Mirae Asset is still the only company eligible for the business. If only one company is entitled to handle IMAs in this burgeoning market, the situation will be burdensome to other financial companies as well as the financial authorities. That's why there are calls to lower the entering bar.
Market experts have also been calling on the government to bring forth specific guidelines and regulations for the IMA market. Yet surprisingly, there still are no detailed rules.
The government is planning to complete its regulatory work on the market by the end of this year, so it will take some more time before customers actually see IMA products.