As financial authorities stress expanding the supply of venture capital, the licensing of commercial paper issuance for Samsung Securities and Meritz Securities has entered the final countdown. With the Financial Supervisory Service's microscope review effectively wrapped up, only the final hurdle, the External Evaluation Committee (EEC), remains.
According to financial authorities on the 25th, Samsung Securities and Meritz Securities are holding the EEC on Tuesday morning for approval to launch their commercial paper businesses. If the EEC offers an opinion that there is no issue with the businesses, the Financial Supervisory Service will complete its due diligence and forward the agenda to the Securities and Futures Commission. After that, once the SFC and the Financial Services Commission (FSC) pass the final resolutions, the two companies can formally begin their commercial paper businesses.
Samsung Securities has been waiting eight years for approval to issue commercial paper. In 2017, Samsung Securities prepared to convert into a megasized investment bank (IB) via a commercial paper business, but the plan fell through when the FSS put its review on hold, citing that Lee Jae-yong, chair of Samsung Group and the de facto controlling shareholder of the company's largest shareholder Samsung Life Insurance, was then on trial.
Currently, the size of equity capital (4 trillion won or more) is the minimum requirement for approval to issue commercial paper, and financial authorities review internal controls and the eligibility of controlling shareholders to decide whether to proceed.
In the early stages of reviewing Samsung Securities and Meritz Securities, the FSS even considered suspending the review. For Samsung Securities, an inspection of key branches that the FSS began in April was cited as a risk factor, while for Meritz Securities, allegations of unfair transactions involving Ehwa Technologies Information's delisted bonds with warrants (BW) became a key focus of the FSS review.
In the end, authorities were said to have concluded that the issues did not rise to the level of serious disqualifications that would affect licensing. The current review for commercial paper approval is proceeding separately from any potential sanctions over the issues.
Commercial paper is an ultra-short-term (within one year) financial product issued by a securities firm on its own credit, paying a pre-agreed interest and guaranteeing principal at maturity.
A securities firm that receives approval can raise low-cost funds up to 200% of its equity capital and invest in high-return assets such as corporate finance, real estate project financing, private equity funds, and overseas alternative investments, effectively gaining IB competitiveness at the level of a "comprehensive financial group."
Earlier, the Financial Services Commission (FSC) created a system obligating large securities firms to supply at least 25% of funds raised through commercial paper or investment management accounts (IMA) to venture capital, so they invest more actively in venture and innovative companies.
Authorities expect that as the number of commercial paper operators increases, the supply of venture capital will become more active, spurring industrial growth, while for individual investors a virtuous cycle will form as they grow their assets through financial products with higher returns.
Meanwhile, among the five securities firms that applied for approval to issue commercial paper this year, Kiwoom Securities was the first to receive approval. Hana Securities and Shinhan Investment Securities have completed the EEC review and on-site inspections and are awaiting the SFC's decision.