As financial authorities plan to receive applications for additional designations of comprehensive financial investment businesses (CIBs) during the third quarter (July-September), Samsung Securities and Kiwoom Securities have secured opportunities to join the ranks of bill issuers. Since the government is set to strengthen the requirements for CIB designation starting next year, securities firms wishing to engage in bill issuance must obtain approval by the end of this year. Meritz, Shinhan Investment, and Hana, which have been left behind by Samsung and Kiwoom, are in a hurry.
Samsung Securities and Kiwoom Securities submitted their applications for approval to operate as bill issuers to the Financial Services Commission on the first day of the month. Previously, the Financial Services Commission had announced on April 9 that it would accept applications for additional CIB designations during the third quarter. As soon as the third quarter began, the two securities firms were the first to submit their applications.
CIBs have different permissible activities depending on their capital size, with 3 trillion won (corporate credit extension), 4 trillion won (bill issuance), and 8 trillion won (IMA) thresholds. The main focus of the securities industry is on CIBs with over 4 trillion won in capital, as this allows for entry into the bill issuance business. This is why five companies, including Samsung Securities and Kiwoom Securities, have thrown their hats in the ring.
When financial investment firms seek to enter new businesses, they do not randomly submit applications; rather, they establish a certain level of understanding through prior contacts with financial authorities. The five securities firms have also submitted preliminary consultation materials to the Financial Supervisory Service and received preliminary reviews before their official approval applications. This means that the submission of applications by Samsung Securities and Kiwoom Securities indicates that these two firms have passed the preliminary review stage first.
A Financial Services Commission official said, "The timing of applications inevitably varies depending on each securities firm's readiness and whether they meet the requirements," adding, "The financial authorities do not arbitrarily determine the order of application submissions."
Bills are promissory notes issued by securities firms based on their own credit, with maturities of less than one year. They can be sold up to double the capital. The issuance process is simple, and funding is easy, making it advantageous for liquidity. Currently, there are four domestic bill issuers: NH Investment & Securities, Mirae Asset Securities, and KB Securities.
Samsung Securities also attempted to enter the bill issuance market in 2017 alongside these securities firms, but halted the approval process due to major shareholder risks and incidents involving ghost stock dividends. For Samsung Securities, this is a re-challenge after eight years. Kiwoom Securities has shown enthusiastic intentions to enter the bill issuance business since last year.
With the submission of approval applications by Samsung and Kiwoom Securities, Meritz, Shinhan Investment, and Hana Securities find themselves in a situation where they cannot help but feel anxious. This is due to the financial authorities' announcement that they will strengthen the requirements for CIB designation starting this year and apply a phased designation principle. For example, starting next year, one of the most critical requirements, capital, must be continuously met for two reporting periods based on year-end settlements.
Once designated as CIBs, new business activities that require approval will be possible, and requirements related to business plans and personal sanction history (social credit) will also be established. Additionally, the financial authorities will ensure that CIBs gradually expand their corporate finance functions by operating for two years or more at each threshold of 3 trillion won, 4 trillion won (bill issuance), and 8 trillion won (IMA), granting designation qualifications for the next phase only to CIBs that meet this period.
An executive at a securities firm noted, "When an application is submitted, the results do not come out immediately; rather, reviews are conducted over 2-3 months, followed by approvals from the Securities and Futures Commission and the Financial Services Commission, as well as a review of terms by the Korea Financial Investment Association," adding, "For securities firms that need to obtain business qualifications within the year, they are bound to be sensitive."
Some have expressed that even if they obtain qualifications for the bill issuance business, it remains to be seen whether they can utilize this properly. This concern arose because authorities announced in April that they would mandate the provision of domestic venture capital amounting to 25% of the total operating assets of all CIBs.
Currently, bill issuers are utilizing the funds in a way that more than 50% goes to corporate finance and less than 30% goes to real estate. The financial authorities have determined that to support innovative economic growth, there is a need to expand the provision of venture capital, thus introducing the '25% venture capital supply obligation.' Concurrently, the limit on the management of real estate-related assets will be adjusted from the current 30% to 15% in 2026 and to 10% in 2027.