FSC reveals plan to boost stocks
Published: 26 Nov. 2014, 21:10
The Financial Services Commission (FSC) on Wednesday announced measures to further boost the equity market by expanding participation of pension funds.
The financial regulator’s action comes as investors are starting to favor slightly riskier assets due to the prolonged low interest rate environment.
Many market analysts have been saying the Korean securities market needs more aggressive investors in order to grow.
The main idea of the latest package is to encourage institutional investors to take part in the equity market.
The FSC decided to raise the current cap on securities investments by banks up from 60 percent of their capital to 100 percent.
For Korea Post, one of the government-run pension funds, the ceiling will be raised from 10 percent of its total deposit funds to 20 percent. The state-run service will be able to invest about 6 trillion won ($5.415 billion) more in stocks.
To encourage small pension funds to make more stock investments, the FSC decided to form an operating committee that will support efficient use of the pension funds. Securities firms and financial institutions on the committee will seek out pension funds managed by public or private institutions in order to attract more funds.
Presently, many institutions are accumulating internal pension funds, which are estimated to total 68 trillion won. But those institutions are not able to invest the funds due to a lack of financial experts. The new committee will take requests from institutions that want to accrue their assets.
The commission will also allow public offering funds to increase their investment in securities. Currently, public offering funds are regulated to diversify investment items. Each investment item in a public offering fund can take up 10 percent of the total. But the ceiling will be raised to 25 percent for more aggressive investments in a particular equity.
Korea will also introduce a Stewardship Code that will protect the rights of institutional investors as shareholders. In Japan and the United Kingdom, institutional investors comply with a Stewardship Code that includes guidelines for decision-making on stock investments.
Current restrictions on the price range of stocks will be doubled from plus or minus 15 percent to 30 percent. The FSC has been restricting rapid price changes in stocks by putting caps on the prices for 10 minutes if they soar more than 10 percent over the previous closing price.
The FSC also announced its plan to create KTOP 30, a Korean version of Dow Jones Industrial Index. KTOP 30 will comprise the 30 strongest blue-chip shares on the Kospi and Kosdaq.
“The main purpose of the package is to help companies emerge from a debt-financing market toward a real equity-financing market,” said Lee Hyun-chul, director general of the capital market bureau at the FSC. “Financing funds from equities will help start-ups and local businesses engage in more active operations.”
But the FSC didn’t come up with measures to benefit retail investors.
The government initially tried to offer tax credits for investors, raising expectations in the market, but they weren’t included in the Wednesday announcement.
BY SONG SU-HYUN [[email protected]]
The financial regulator’s action comes as investors are starting to favor slightly riskier assets due to the prolonged low interest rate environment.
Many market analysts have been saying the Korean securities market needs more aggressive investors in order to grow.
The main idea of the latest package is to encourage institutional investors to take part in the equity market.
The FSC decided to raise the current cap on securities investments by banks up from 60 percent of their capital to 100 percent.
For Korea Post, one of the government-run pension funds, the ceiling will be raised from 10 percent of its total deposit funds to 20 percent. The state-run service will be able to invest about 6 trillion won ($5.415 billion) more in stocks.
To encourage small pension funds to make more stock investments, the FSC decided to form an operating committee that will support efficient use of the pension funds. Securities firms and financial institutions on the committee will seek out pension funds managed by public or private institutions in order to attract more funds.
Presently, many institutions are accumulating internal pension funds, which are estimated to total 68 trillion won. But those institutions are not able to invest the funds due to a lack of financial experts. The new committee will take requests from institutions that want to accrue their assets.
The commission will also allow public offering funds to increase their investment in securities. Currently, public offering funds are regulated to diversify investment items. Each investment item in a public offering fund can take up 10 percent of the total. But the ceiling will be raised to 25 percent for more aggressive investments in a particular equity.
Korea will also introduce a Stewardship Code that will protect the rights of institutional investors as shareholders. In Japan and the United Kingdom, institutional investors comply with a Stewardship Code that includes guidelines for decision-making on stock investments.
Current restrictions on the price range of stocks will be doubled from plus or minus 15 percent to 30 percent. The FSC has been restricting rapid price changes in stocks by putting caps on the prices for 10 minutes if they soar more than 10 percent over the previous closing price.
The FSC also announced its plan to create KTOP 30, a Korean version of Dow Jones Industrial Index. KTOP 30 will comprise the 30 strongest blue-chip shares on the Kospi and Kosdaq.
“The main purpose of the package is to help companies emerge from a debt-financing market toward a real equity-financing market,” said Lee Hyun-chul, director general of the capital market bureau at the FSC. “Financing funds from equities will help start-ups and local businesses engage in more active operations.”
But the FSC didn’t come up with measures to benefit retail investors.
The government initially tried to offer tax credits for investors, raising expectations in the market, but they weren’t included in the Wednesday announcement.
BY SONG SU-HYUN [[email protected]]
with the Korea JoongAng Daily
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