South Korea’s securities firms are sitting on record levels of foreign currency deposits as retail investors pile into overseas securities, prompting brokerages to branch into new businesses such as foreign exchange services.
Client funds held at the Korea Securities Finance Corp. (KSFC), where brokers are required to park a portion of investors’ trading balances, hit 11.42 trillion won ($8.3 billion) at the end of the second quarter ended June this year, the highest on record, according to the state-run institution on Tuesday.
Given rules requiring brokers to deposit 80% of client funds in US dollars and 50% in Japanese yen – and with most foreign funds in the greenback – industry officials estimate the actual amount entrusted to firms exceeds 14 trillion won.
When the country’s mandatory deposit rules were introduced in late 2021, client funds in foreign currency totaled 5.79 trillion won.
They dipped below 5 trillion won during the US market downturn of 2022, but rebounded alongside Wall Street’s recovery in 2023 and have since more than doubled.
(Source: Korea Securities Finance Corp.) By now, overseas stocks rival domestic equities in scale for many Koreans, turning foreign equities into a core business for local brokerages, swelling fee income and pushing them into new ventures such as foreign exchange services.
FATTENED FEE INCOME OPENS DOOR TO NEW BUSINESSES
As of Sept. 1, domestic investors held $196.6 billion worth of offshore shares, according to the Korea Securities Depository, greater than the combined market capitalization of SK Hynix Inc. and LG Energy Solution Ltd., the country’s second- and third-largest listed stocks.
That popularity has translated into record fee income for brokerage houses.
Korea’s top 10 securities firms earned a combined 767.4 billion won in custody fees for foreign securities in the first half of this year, up sharply from 475.9 billion won a year ago.
Including relatively newbies such as Toss Securities and Kakao Pay Securities, which cater to younger clients in their 20s and 30s, industry revenue from such fees is nearing 1 trillion won.
(Courtesy of Getty Images) With cash piles fattening, Korean brokerages are pushing into new lines of business.
A 2023 amendment to Korea’s Regulation on Foreign Exchange Transactions allowed securities firms with comprehensive financial investment business licenses – the country’s investment bank-style designation – to offer retail and corporate foreign exchange services.
Last month, Kiwoom Securities Co. became the first Korean brokerage to launch currency exchange services, partnering with KB Kookmin Bank and Hana Bank.
Shinhan Securities Co. also plans to follow in the fourth quarter, while Samsung Securities Co., NH Investment & Securities Co. and Mirae Asset Securities Co. are readying their own rollouts.
“The industry is being reshaped around overseas equities,” said a senior executive at a major brokerage.
“Among clients under 40, foreign stock holdings already exceed domestic shares, and firms are expanding research teams and launching new services to capture that demand.”
