Securities Firm M&As
Criticism has been levied at the Financial Services Commission’s measures to encourage M&As among stock firms, which were released late last year, have lost effect in just half a year to consistency compromise policy. Experts point out that the measures conflict with the commission’s recently-announced financial regulation reform plan.
One of the typical examples is the private fund management business. The FSC suggested the permission of the private fund management business as an incentive in December last year to address the structural problem of the securities industry in that over 60 firms are jumbled up and preferentially grant the license to firms going for M&As of a certain size.
However, according to the deregulation plan, the private fund management business is going to be converted from an approval basis to a registration basis. This means that securities companies do not necessarily have to be engaged in M&As to start private fund management.
In response, the FSC explained that the registration would not be allowed during the period when the M&A incentive remains valid. The incentive is applied to M&A deals that are made within three years from the enforcement date. “No registration will be granted during the period so that companies engaged in M&As can take the initiative in the private fund management sector,” the FSC remarked, continuing, “As such, the incentive can remain effective.”
Still, industry insiders’ consensus is that the effect of the incentive will be insignificant because few M&A deals can be wrapped up within a short period of three years. “Only a couple of companies at best will be able to enter the sector through M&As within the short period, and this means the advantage of early starters will be meaningless,” said one of them, adding, “Then, starting the new business after thorough preparation will be more attractive for stock firms than doing so through the huge event of M&As.”
Some also pointed out that the government’s goal to encourage the specialization of smaller securities companies is discrepant from the recently established plan. “At first, the government advised such firms to be specialized in certain sectors while driving larger companies to focus on investment banking,” an industry expert mentioned, “However, the stricter licensing will result in companies running more types of businesses in similar business structures.”