South Korea unveiled Tuesday a series of steps to deregulate its lagging brokerage sector, hoping a Korean version of Goldman Sachs would emerge from one of the least competitive sectors of Asia's fourth-largest economy.
The regulators expect the new measures, part of an overall capital markets revamp, to encourage mergers and acquisitions in the brokerage sector and nurture global financial players.
The announcement boosted shares of top brokerage firms by nearly 7 per cent. If successful, the regulatory steps could help homegrown firms take market share from global heavyweights Goldman Sachs, JPMorgan Chase & Co and Credit Suisse in a Korean market that has shown a growing appetite for deals in recent years.
"It will encourage domestic brokerages to take more risks and diversify their revenue sources away from brokering services, which are share-price positive," said Son Miji, an analyst at Shinhan Investment Corp.
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"But it will be a far-fetched idea to expect them to grow large enough to challenge global heavyweights, given Korea's economic scale and because they will be competing against the big five fish controlling the global prime brokerage market."
The Financial Services Commission (FSC) said yesterday it will revise regulations to allow home-grown investment banks to provide corporate financing as part of a move to grow the non-banking financial sector and channel funds to liquidity-strapped mid-sized firms.
Some 40 local brokerages are competing against each other and against about 20 foreign firms in South Korea. Crammed with small players, the Korean brokerage sector has been one of the low-profile industries in the country's manufacturing-based economy, which boasts top-rated global brands such as Samsung and Hyundai.
The average equity capital of the country's top five brokerages stands at 2.7 trillion won ($2.6 billion), or just 1/30th of that of Goldman Sachs.
"This isn't a big bang for sure. Maybe in the long term, say five to 10 years, Korean banks will be in a position to emulate what the major foreign securities companies like Goldman Sachs or Morgan Stanley can do," said a securities lawyer in Seoul.
"If you look at Goldman Sachs or Morgan Stanley they have the technical skills, they have a global network of people, so it will be very hard for Korean companies to get to that level, but this could lay the foundation to move a bit closer."
Under the proposed changes, South Korea will let brokerages with equity capital in excess of 3 trillion won be reclassified as investment banks and offer corporate financing, an area that commercial banks have dominated so far.
Currently, even top-ranked brokerage Daewoo Securities has only 2.86 trillion won in equity. It competes with 41 local brokerages, including second-ranked Samsung Securities and third-ranked Hyundai Securities.
"With the changes, there will be no immediate growth or threat to other foreign players, but the government is trying to consolidate the sector and grow the big players," said Kim Ji-hyun, an analyst at HI Investment & Securities.
Shares in Woori Investment & Securities jumped nearly 7 per cent before closing up 4.7 per cent. Samsung rose 5.3 per cent and Daweoo gained 4 per cent, helped by the deregulation measures.
Shares of some small firms however, fell on concerns they may have to recapitalise to meet the 3 trillion won minimum requirement should they pursue the new business. Shares of seventh-ranked Mirae Asset Securities tumbled 7.3 per cent.