Brokerages seek support to lift market status

Chief regulator urges CEOs to refrain from issuing credit loans


CEOs in the brokerage industry called for financial authorities to map out measures for the South Korean stock market to be upgraded to developed status.

Their request targets an upgrade from Morgan Stanley to reduce the “Korea discount” in terms of stock prices.

During their meeting with Financial Supervisory Service Gov. Kwon Hyouk-se on Wednesday, the CEOs said they need the authorities’ support to achieve the developed-market status.

“To garner confidence from foreigners, it is necessary for the nation to actively push for the MSCI reclassification of Korea to developed market,” a CEO from a local securities firm said.

In its decision in June, Morgan Stanley, a global provider of equity benchmark indices, did not upgrad the Korea Exchange from “emerging market” to “developed market.”

The nation has failed to attain the target three times since 2009. Morgan Stanley had cited the difficulty in the Korean currency’s convertibility.

The U.S. grader also said the “rigidity” of Korea’s investor registration system makes some trades more difficult, and that real-time data didn’t meet requirements.

Korea has already been regarded as a developed market by many other index providers such as FTSE Group, Dow Jones and Standard & Poor’s.

BNP Paribas has said there was a large but temporary inflow into Korea immediately after the FTSE reclassification announcement in 2008, which had reversed the persistent outflow trend throughout the year.

“Moreover, we noticed the similar sharp uptick in net-buying by overseas investors in September 2009, when the actual upgrade had become effective,” BNP said in its report.

The Korea Exchange Inc. said European investors bought a net 6.3 trillion won ($5.8 billion) of local stocks between March and July 2009.

Meanwhile, Kwon called for the CEOs to refrain from issuing credit loans to customers.

A number of retail investors have been applying for the credit-based loans from brokerage firms in an attempt to gain huge gains from conducting short-term trading.

Kwon said the practice could bring great damage to individual investors amid the current volatile situation of the stock market.

The top regulator has been holding a series of meetings with chief executive of in the financial industry to notify them of exact situation of the local market and regulatory policies.

Last month, he held a meeting with chief executives of foreign investment banks’ Korean units and chairmen of Korea’s major financial groups.

By Kim Yon-se (kys@heraldcorp.com)