Financial Deregulations
The government now allows foreign exchange transactions between securities companies in an attempt to lower the volatility by increasing the number of forex market participants. This measure is expected to result in an opportunity to generate new profits on the part of securities companies.
“The discussions that started last year have come to the final stage now,” said the Ministry of Strategy and Finance on October 10, adding, “We are planning to allow spot transactions between stock firms in the foreign exchange market.” The ministry is going to revise the related regulations before the end of this year.
According to the current regulations, securities companies have to go through foreign exchange banks during the transactions. Although depending on the sizes of such firms and banks, the credit line ceiling given by a bank to securities firms is between US$10 million and US$100 million per day. The amount is truly small, given that the daily average amount of foreign exchange transactions is approximately US$45 billion for each foreign exchange bank. This means that securities firms cannot transact as they wish while paying their fees to the banks. In particular, many small-sized stock firms have given up on participating in the market due to this very reason.
However, thanks to the new measure, it is expected that the range of the asking price will be widened and profits can be generated by utilizing the exchange spread. At the same time, the government is anticipating greater stability in the forex market with the number of players in it going up. Just 10 securities companies are taking part in the Seoul Foreign Exchange Market now, including Hyundai, Samsung, and Daewoo Securities.
Some people are saying that, in the long term, the new policy will empower local stock firms will be able to compete with global investment banks on equal ground because they can have their own way in the forex market, which has been dominated by banks. “The policy change will help Korean securities companies make inroads into overseas markets,” said Lee Seung-ho, director of the International Finance Office of the Korea Capital Market Institute.