Overseas investment boom leaves retail investors with heavy losses: FSS

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Securities firms have posted record-high brokerage fee income from overseas stock trading as retail investors increasingly turn to foreign markets, but rising volatility has left about half of those investors posting losses on overseas equities, the Financial Supervisory Service (FSS) said Friday.

Against this backdrop, the financial watchdog said it will promptly escalate its reviews of overseas investment sales practices at brokerage firms into full-scale on-site inspections.

It vowed to take tough measures, including the suspension of overseas stock business, if unlawful or improper conduct, such as deceptive marketing or insufficient risk disclosure, is identified.

The FSS released interim results from its reviews of overseas investment practices, which have been underway since Dec. 3 at major brokerages and asset managers.

The findings showed that brokerage commissions from overseas stock trading at the 12 largest securities firms totaled about 1.95 trillion won ($1.3 billion) during the January-November period, marking an all-time high and more than tripling from 581 billion won a year earlier.

Revenue from foreign exchange fees tied to overseas investment transactions by retail clients also surged over the same period, rising from 147.7 billion won to 452.6 billion won.

However, the rapid expansion of overseas investment by individual investors has not translated into broad gains. Nearly half of retail investors recorded losses on overseas stocks, with the share of loss-making accounts rising to 49.3 percent as of August, up about 20 percentage points from a year earlier. Average profit per account also plunged to 500,000 won from 4.2 million won.

Losses also grew in overseas derivatives trading. From January through October, retail investors posted net losses of 373.5 billion won on overseas futures and options, despite total trading volume reaching 7,232 trillion won. Cumulative losses over the past five years have amounted to about 2.05 trillion won.

“Retail investors have suffered persistent and sizable losses in overseas derivatives trading for several years, largely independent of overall market conditions,” an FSS official said.

Financial Supervisory Service (FSS) Gov. Lee Chan-jin holds a press conference at FSS headquarters in Seoul, Dec. 1. Yonhap

In response, the watchdog said it will step up its oversight by moving to full on-site inspections to closely examine areas of potential concern. Kiwoom Securities and Toss Securities have been selected as the first inspection targets, as they rank among the top firms in overseas trading volume, according to FSS insiders.

Authorities are focusing in particular on excessive competition among brokerage firms to attract investors.

“Securities companies have been aggressively rolling out promotional campaigns to lure customers into overseas investments, especially U.S. stocks, through cash incentives linked to trading volume and fee reductions,” the official said.

The FSS also pointed to inadequate risk disclosure as a key issue, noting that information on exchange rate risks, settlement delays due to time differences and tax discrepancies is often provided only at account opening, with limited ongoing guidance.

It also warned that violations such as misleading advertising, unsuitable investment recommendations or insufficient explanations of investment risks could result in severe measures, including the suspension of overseas stock business.

To rein in aggressive overseas investment marketing, the FSS suspended new cash-based promotional events and advertising related to overseas investment through March next year and plans to ban trading volume-linked promotions. Brokerages have also been urged to strengthen investor guidance on overseas investment risks through their trading platforms.