Brokerages finally get a boost from legislation

A National Assembly subcommittee’s approval of a revision in the Capital Market Act aimed at fostering investment banks has boosted stock prices of brokerage firms that have been desperately searching for new sources of revenue.

The Legislation and Judiciary Subcommittee of the National Policy Committee passed the revision Tuesday afternoon to encourage tailored financing for individual companies and boost competition in the capital market by adopting alternative trading systems and central counterparty clearinghouses for over-the-counter derivatives.

The bill allows big brokerage firms with equity capital of 3 trillion won ($2.6 billion) to provide investment banking services.

Shares of KDB Securities closed at 10,900 won yesterday, up 3.32 percent as investors scooped the firm’s stock amid hopes that the legislation will have a positive effect on the sector.

Tongyang Securities jumped by 3.18 percent to finish at 3,895 won, followed by Hyundai Securities (3.06 percent), Hanwha Investment and Securities (2.92 percent), Woori Investment and Securities (2.71 percent) and Samsung Securities (1.57 percent). Other securities firms also gained.

“The subcommittee’s passage of the revision bill is significant in that it creates a new way for brokerage firms and other investment firms to generate income. It will also bring other benefits such as allowing listed companies to diversify channels for raising funds,” said a brokerage firm employee.

Korea’s five largest brokerages - Samsung Securities, KDB Daewoo Securities, Hyundai Securities, Woori Investment and Securities and Korea Investment and Securities - increased capital by as much as 3 trillion won in 2011 in anticipation of the revision.

The bill failed to reach a floor vote in March 2012 as lawmakers were busy campaigning for the April 11 general elections, despite appeals from the government and financial industry.

If passed at the National Assembly’s plenary session this year, “the revision bill will improve investor sentiment that was dampened when brokerage firms sought massive capital increases” at the end of 2011, said Jeong Gil-won, an analyst at KDB Securities. “Given that the subcommittee passed the revision bill, approval is likely.”

Jeong kept a buy recommendation for brokerage firms and recommended Samsung Securities, Kiwoom Securities and Korea Investment Holdings given that alternative trading systems would cut transaction costs for the firms.

By Kim Mi-ju [mijukim@joongang.co.kr]