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05-09-2007 19:11
Capital Market Bill Needs Speedy Passage
Park Yong-man, vice chairman of the Korea Securities Dealers Association (KSDA), says that the Capital Market Consolidation Act needs parliamentary approval at the earliest time to help domestic securities firms become globally-competitive investment banks. / Korea Times Photo by Shim Hyun-chul
Brokerage Companies Seek Clearing Service for Customers
By Lee Hyo-sik
Staff Reporter
The securities industry is waiting for the National Assembly to pass a bill aimed to consolidate the nation’s capital market as soon as possible to help local brokerage houses grow into internationally competitive investment banks.
Park Yong-man, vice chairman of the Korea Securities Dealers Association (KSDA), also said the ongoing conflict over whether to grant securities firms to provide basic banking services such as payment settlements should be resolved for the sake of consumers, saying that allowing brokers to provide these services will increase customer benefits.
``Considering the presidential election in December and other political events, the Assembly should not delay the passage of the Capital Market Consolidation Act (CMCA) and must pass the bill in the first half of the year for implementation next year,’’ Park stressed in an interview with The Korea Times.
He said the prompt passage of the bill is a must to keep Korea on par with rival countries in an increasingly crowded race to become a global financial hub, adding his organization will play an important role in advancing the country’s capital market and strengthening the competitiveness of the securities industry.
The KSDA acts as a self-regulatory organization that promotes fair trade and investor protection, and strengthens public confidence in the securities market, having 33 regular members and 20 special members, 39 of whom are domestic and 14 foreign.
The capital market integration bill seeks the consolidation of 11 rules and regulations in the capital market by function, not by different types of financial entities.
It will make it easier for the integration of securities firms, asset management firms and futures’ firms to nurture investment banks with international competitiveness that can effectively compete with the likes of Goldman Sachs and Merrill Lynch on global markets. The bill is expected to get parliamentary approval in June.
Analysts say securities firms will likely be the biggest beneficiaries of the incoming capital market bill as it will offer an opportunity for them to transform into investment banks.
The act will also adopt the negative system for product development under which all investment products are allowed unless specifically prohibited. The change will enable market players to develop and introduce a lot of advanced investment products.
However, differences among various interest groups on payment settlement and cash transaction services at brokerage houses has kept the bill from being passed by the Assembly even though there is a consensus in the financial industry that barriers between diverse financial companies should be demolished for local players to grow and survive global competition.
Consumer Benefits
``Whether to allow brokers to offer basic banking services or not should not become a tug of war between banks and securities firms. The issue should be looked at from the consumers’ standpoint. I think consumers will benefit more when brokerage houses provide payment settlements, which will enable accountholders to pay utilities fees, and credit card and other bills through their securities accounts,’’ Park said.
He said as a result, customers will enjoy lower financial transaction fees as well as high quality customer services as the competition to attract payment accounts among financial institutions intensifies.
But the central bank has opposed allowing brokerage houses to provide cash transaction services, saying that it could undermine the soundness of the payment settlement system, with some lawmakers and professors campaigning against the passage of the bill.
Bank of Korea (BOK) Governor Lee Seong-tae recently said the bill runs counter to the principle that financial firms should compete on a level playing field, saying it discriminates against banks.
Lee also said allowing securities firms to offer payment settlements could create risk to the country’s payment system and could cause a plunge in the stock market and a massive withdrawal of money from accounts.
But Park said there would be no such risks because the industry would prepare a range of safety measures to prevent such scenarios.
``Even savings banks and credit cooperatives, which have weaker financial payment ability than brokerage firms, provide limited payment settlement services. I think it would be ideal to apply the similar system to the securities companies,’’ he said.
Analysts say banks oppose the measure because it will negatively affect them, as customers, who have kept money in ordinary bank accounts de****e their low interest rate, will switch to securities firms once they provide the same services.
New Sources of Income
To grow into leading investment banks and compete with foreign rivals at home and abroad, Park said local securities companies should diversify their income sources, making greater efforts to generate earnings from asset management, and merger and acquisition (M&A) consulting services.
``The current profit structure for domestic brokerages is extremely vulnerable to fluctuations in the stock markets as their income largely depends on brokerage fees. That is why they need to diversify their earnings sources into investment banking and other sophisticated financial operations,’’ he said.
Korean brokers generated about 62 percent of their net income from commission fees last year, with only 14 percent coming from investment banking business. But U.S. securities firms rely on about 66 percent of their net income coming from investment banking, including investment product management and financial advisory services.
Local brokers cannot compete with foreign rivals in size as well. The combined equity capital of Korea's six largest securities companies, including Samsung Securities, amounts to only about 1.7 trillion won at the end of last year, compared with Goldman Sachs’ 28 trillion won.
Skilled Manpower
Park also said local securities companies should nurture skilled human resources in the financial services area, who can develop derivatives and more sophisticated new financial products.
``Compared to Hong Kong, Singapore and other rival countries, Korea lacks in skilled financial workers. If the current trend continues, the industry will be short of some 10,000 financial professionals in 10 years. The government and the industry should join hands together to educate and produce talented financial manpower through a long-term blue print,’’ he said.
As part of such a effort, the KSDA is running an array of training programs all year round, including a master of business administration (MBA) course, to train professionals in diverse investment banking services.
It has also signed a number of memorandums of understanding (MOUs) with foreign financial education institutions to jointly operate internationally competitive education programs.
``Now is also time for domestic securities companies to make inroads into foreign markets to develop new earnings sources and become globally competitive firms, as the domestic sector has become increasingly saturated,’’ Park said.
He said his organization has increased cooperation and exchanges with regulators and the securities industry in China, India and other emerging Asian economies to help local brokers explore business opportunities there.
``Last year, we invited about 30 people from the securities industries in India and several Southeast Asian countries as part of a training program to introduce Korea’s capital market and increase the level of human exchange. Through such a program, we will help Korean brokerage firms advance into emerging markets and grow into global players,’’ Park concluded.
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Capital Market Bill Needs Speedy Passage(The Korea Times) 
