New bill to shake up Korea's brokerage sector sparks debate

SEOUL, Feb. 2 (Yonhap) -- Controversy is brewing over South Korea's new capital
market deregulation act as opponents raise doubts on the timing of the
implementation amid the global financial turmoil, market watchers said Monday.

The capital market consolidation act is designed to break down barriers
separating the securities and asset management and futures businesses and to
allow brokerage houses to play a bigger role in the capital market. The bill goes
into effect starting Wednesday.
The bill is widely expected to drastically change the landscape of the country's
brokerage sector as it will allow for greater competition and spur takeovers by
lowering entry barriers.
"The act, if implemented, is expected to have a sweeping impact on the Korean
capital market. It will spark competition and bring about restructuring in the
brokerage industry through market principles," said Kim Ji-young, an analyst at
Hi Investment & Securities Co. Currently, 62 brokerages operate in South Korea,
including 21 foreign players.
Market watchers say that large brokerage houses are expected to scramble to grow
larger through takeovers to win a bigger slice of the market while smaller
players may seek to find niche markets in order to survive.
But critics say that despite expected new changes in the brokerage industry, the
timing of the implementation couldn't be worse in the midst of the global
financial turmoil.
The implementation came as the South Korean economy shrank a whopping 5.6 percent
last quarter from three months earlier, hit by the global financial turmoil and
is widely expected to log negative growth this quarter, lapsing into a recession,
or two straight quarters of quarterly decline.
The bill is aimed at creating the Korean version of investment bank Goldman Sachs
Group, able to compete with global rivals, but the collapse of U.S. major
investment banks like Lehman Brothers Holdings Inc. is raising questions over
whether a raft of sweeping deregulation measures is wise or not in difficult
times.
Lee Dong-gull, former president of the Korea Institute of Finance, told a forum
last November that the country needs to reconsider introducing the bill if the
Korean act pursues taking U.S.-style investment banks as a model.
Analysts also pointed out that foreign securities firms may sit in the 'catbird
seat' if the bill is implemented as they are already equipped with expertise and
more experience in the investment banking business.
"It is worrisome that the bill will go into effect in a situation in which
domestic players lack advanced techniques and risk management know-how compared
with foreign rivals," said Kim Yoon-ki, an economist at Daishin Economic Research
Institute.
They said that South Korean brokerage houses are not likely to be able to lead
the global investment banking industry within a short period of time.
Kim at Hi Investment & Securities added that besides the push for size, local
securities firms should make efforts to beef up their manpower with expertise and
increase their capital base.
sooyeon@yna.co.kr
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