Brokerages fret about stalled bill

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Brokerages fret about stalled bill

Less than a month before the general elections, a comprehensive revision of capital market rules is in danger of being postponed or even falling through due to lawmakers’ lack of interest, despite urgent calls from the government and financial industry for the bill to be passed.

The delay is expected to cause problems due to a conflict between the existing rules and the pending Commercial Act - which the revision would iron out - with listed companies unable to take advantage of new financing routes that will be available to unlisted companies.

At a packed public hearing for the proposed revision of the Financial Investment Services and Capital Markets Act at the National Assembly in Yeouido, western Seoul, yesterday afternoon, CEOs and top officials underscored their calls for comprehensive changes to the brokerage and asset management industry.

“The time has come for a full-scale reform of our capital market,” said Financial Services Commission Chairman Kim Seok-dong.

The comprehensive proposal seeks to revise 190 of some 440 articles within the Capital Markets Act. These include changes to foster more domestic investment banks that can provide financing tailored to individual companies, plus ways of boosting competition within the capital market by adopting alternative trading systems and central counterparty clearinghouses for over-the-counter derivatives.

The desire to see the revision passed was palpable as the auditorium was filled with over 300 financial industry professionals, government officials and other observers. The FSC chief was accompanied by a bevy of industry leaders such as Im Kee-young, CEO of KDB Daewoo Securities; Kim Suk, CEO of Samsung Securities; and Hwang Sung-ho, CEO of Woori Investment & Securities.

However, the lawmakers they wished to convince were conspicuously absent. Since they were proposed last November, the revised rules were held up at the National Assembly’s National Policy Committee and failed to even reach a floor vote. Out of 24 lawmakers on the National Policy Committee, only three attended the proceedings. The rest were busy campaigning for the April 11 general elections.

The effort to revise capital market rules would revert back to square one if the proposal does not pass a floor vote by the end of May, when the current parliamentary session ends. Not only would the entire process have to be repeated in the second half of the year, but the possibility of it being passed in the future would be slim given the looming presidential election in December.

Last year, Korea’s five largest brokerages underwent capital increases of up to 3 trillion won ($2.68 billion) in anticipation of the revisions.

With time running out for the revision to be passed, a conflict between the capital market rules and the new Commercial Act that goes into effect on April 15 could become a problem.

For example, the revised Commercial Act allows companies to issue derivative-linked securities (DLS) with returns tied to the movement of a variable, such as a stock index or currency exchange rates.

However, because the capital market rules have not been revised to reflect the changes, unlisted companies will be able to issue DLS from April 15, but listed companies will not.

“If the revision is not passed during this parliamentary session, we’ll have to try again next year, but the damage from all the costs and the delay will be unfortunate,” said Kim Hwa-jin, a law professor at Seoul National University.

By Lee Jung-yoon []

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