Shinhan Investment & Securities has officially challenged the giant investment bank (IB). Specifically, it means that it intends to submit an application for issuing bills, which is allowed only for comprehensive financial investment businesses (corporations) with more than 4 trillion won in equity capital. Until now, Shinhan Investment & Securities has been passive in entering the giant IB market due to concerns about financial accidents and internal control issues. However, after the government recently called for strengthening the role of corporations and proposed measures to enhance competitiveness, the company has solidified its position to take on this challenge.
On the 11th, Shinhan Investment & Securities stated, “Two days ago (April 9), after the financial authorities announced improvement measures for the corporation system, we discussed internally whether to submit an application for issuing bills in the second half of this year.” It added, “After comprehensive review of various opinions, we decided to take on the (issuing bills business).”
Earlier, the Financial Services Commission stated in the 'Measures to Enhance Competitiveness of Corporate Finance in the Securities Industry' announced on the 9th of this month, “We will begin accepting applications for additional designations of corporations in the third quarter of this year.” The permitted activities for corporations vary depending on their equity capital scale: 3 trillion won (corporate credit provision), 4 trillion won (issuing bills), and 8 trillion won (comprehensive investment accounts (IMA)). The Financial Services Commission indicated it would accept applications for corporations with 4 trillion won (issuing bills) and 8 trillion won (IMA) in the third quarter.
Issuing bills refer to bills issued by securities companies based on their own credit, with a maturity of less than one year. These can be sold up to twice the amount of equity capital. The issuance process is simple, and funding is relatively easy, making it beneficial in terms of securing liquidity. Shinhan Investment & Securities' equity capital is approximately 5.4945 trillion won as of the end of 2024, meeting the financial requirements for the issuing bills business.
Currently, four securities firms are engaged in the issuing bills business in South Korea: Mirae Asset Securities, Korea Investment & Securities, NH Investment & Securities, and KB Securities. Although they have not yet received approval, other securities firms seeking to enter this business include Samsung Securities, Kiwoom Securities, Hana Securities, and MERITZ Securities.
In the meantime, Shinhan Investment & Securities has shown a passive stance toward entering the so-called giant IB market, where issuing bills are possible. The aftermath of the Lime Fund incident in 2019 was severe, and last year, the company faced an investigation from the Financial Supervisory Service and the prosecution due to a trading loss incident involving exchange-traded funds (ETFs) worth 130 billion won. During this time, the lax internal control system also came under scrutiny.
Even though the investigations by authorities and prosecutors related to financial accidents are still ongoing, Shinhan Investment & Securities' decision to challenge the issuing bills business is interpreted as a response to the financial authorities' indication that they would tighten approval standards starting next year. During the announcement on the 9th, the Financial Services Commission said, “Considering the situation that securities firms have prepared, we will designate corporations according to the current requirements this year and strengthen the designation requirements starting next year.”
The financial authorities stated that for the critical requirement for designating corporations, which is the equity capital requirement, firms must meet it continuously for two periods based on year-end settlements starting next year. Additionally, once designated as corporations, firms will be allowed to undertake new businesses equivalent to approval, and new requirements regarding business plans and prior regulatory history (social credit) will be established.
A representative from Shinhan Investment & Securities noted, “In accordance with the purpose of capital market policies, we will do our utmost to fulfill our roles as providers of corporate finance and venture capital. However, the top priority is to ensure effective internal control, and preparations for becoming a giant IB will also proceed under the strengthened internal control framework.”