Korea Set to Introduce Big Investment Banks

The financialization of the Korean economy seems to get accelerated. We know what has happened to the U.S.

We also know that the backbone of the Korean market is retail investors, not investment bankers. Mega investment banks around the globe have invested in paper assets of all kinds, only making money from money, not in productive assets.

As the case of the U.S. has shown, this move may further destroy Korean manufacturing.

From Yonhap:

South Korea will seek to permit the establishment of large homegrown investment banks within this year, which will engage in financing mergers and acquisitions and trading in unlisted stocks, the financial regulator said Tuesday.

Under a revision bill to the capital market law, brokerages with an equity capital over 3 trillion won (US$2.8 billion) will be allowed to become investment banks, the Financial Services Commission (FSC) said.

The average equity capital of the country's top five brokerages stood at 2.7 trillion won as of end-March, around one-thirtieth of that of investment giant Goldman Sachs Group Inc. The five local heavyweights include Daewoo Securities Co., Samsung Securities Co., Hyundai Securities Co., Woori Investment & Securities Co. and Korea Investment & Securities Co.

Last week, FSC Chairman Kim Seok-dong told reporters that a new policy direction on the capital market law is essential to the future of the local financial industry, adding that the regulator will strive to ensure that the capital market law will create explosive energy as originally planned.

South Korea enforced the capital market law in 2009 to help create globally competitive financial giants by abolishing regulatory barriers banning brokerages from pursuing future trading and other asset management operations. Market watchers, however, had highlighted the need to update the act to reflect changes in the global financial environment.

The revision bill also calls for allowing the establishment of an alternative trading system (ATS) in a bid to beef up global competitiveness of the Korea Exchange (KRX), the nation's sole bourse operator.

The FSC also said the introduction of ATS is an inevitable global trend. Around 120 alternative trading systems are in operation across the world, with stock trading via ATS accounting for 42 percent of all stock trading in the United States. Stock trading via ATS reached only 1 percent in Asia last year, but a growing number of countries such as Australia and Singapore have adopted the system.

Meanwhile, the financial regulator also pledged to step up investor protection by tightening regulations and expanding penalty policies on unfair market practices, such as stock price manipulation and scalping. The measure was designed to prevent overseas investment banks and hedge funds from taking advantage of the country's relatively lax regulations on price manipulation, it said.

http://english.yonhapnews.co.kr/business/2011/07/26/20/0503000000AEN20110726004052320F.HTML