Meritz Securities (008560) has won regulatory approval to issue short-term notes, about one year and two months after first applying. With every eligible comprehensive financial investment business entity now licensed, competition among these firms to attract customer deposits is set to intensify.
The Financial Services Commission approved Meritz Securities' application for a short-term financing business license and its designation as a comprehensive financial investment business entity, which requires equity capital of at least 4 trillion won, at a regular meeting on the 23rd. Meritz becomes the ninth firm licensed to issue short-term notes, following Korea Investment & Securities, Mirae Asset Securities, NH Investment & Securities, KB Securities, Kiwoom Securities, Hana Securities, Shinhan Securities and Samsung Securities.
Short-term notes are issued with the customer as payee and the brokerage as payer, at a yield agreed in advance for a term of up to one year. Brokerages can use the funds raised from customers as investment capital to expand their businesses. The issuance ceiling is 200% of a firm's equity capital.
Meritz Securities held equity capital of 8.35 trillion won ($5.96 billion) on a separate basis at the end of the first half, allowing it to raise up to about 16.7 trillion won through short-term notes. The firm also meets the equity capital requirement of at least 8 trillion won for operating an integrated management account business, so if it maintains that level for the next two years, it can apply for designation as a comprehensive financial investment business entity with more than 8 trillion won in equity capital, which permits IMA operations.
Meritz Securities originally applied in July last year and was scheduled for review by the Securities and Futures Commission in April, but was abruptly dropped from the agenda. The delay was attributed to suspected unfair trading involving bonds with warrants issued by Ehwa Electric, which prosecutors are investigating, and to allegedly improper business practices at branch hubs that the Financial Supervisory Service is reportedly examining.
The FSC ultimately concluded that those matters were not serious enough to halt the review. Some read the decision as reflecting the regulator's policy push to expand the supply of venture capital. Comprehensive financial investment business entities are required this year to supply venture capital equivalent to 10% of the funds they raise through short-term notes. That ratio rises in stages to 20% next year and 25% in 2028.
With Meritz Securities, the fourth-largest domestic brokerage by equity capital, joining the field last, a fierce contest among the nine firms to attract customer funds is expected for some time. Daishin Securities (003540), which first surpassed 4 trillion won in equity capital at the end of last year, must maintain that level through next year before it can apply for a short-term note license.
Outstanding short-term notes issued by domestic brokerages totaled 55.93 trillion won at the end of the first half, up 9.1% from 51.27 trillion won at the end of last year. Of that, balances at Kiwoom Securities, Hana Securities and Shinhan Securities (008670), which were licensed at the end of last year, grew quickly to 3.11 trillion won, or 5.6% of the total. Samsung Securities (016360), licensed on the 9th of this month, launched a 110 billion won promotional short-term note product on the 21st and sold it out in two days. Industry watchers expect Meritz Securities to roll out a high-rate promotional product yielding around 5% annually before long.
"Based on the investment banking capabilities and risk management know-how we have built up, we will do our utmost to supply venture capital to innovative and growing companies," an official at Meritz Securities said. "We will strengthen our investment banking competitiveness on the foundation of stable funding and create a virtuous cycle that offers retail customers quality investment opportunities."
