Liquidity 100% regulation expanded to all securities firms
The government is extending the securities firms’ liquidity ratio 100% regulation to all securities firms. Securities firms’ earnings have grown, but new standards that discount the valuation of stocks and bonds are set to put pressure on fund management.
The government is expanding the scope of liquidity regulation to cover all securities firms. The liquidity ratio 100% standard, which currently applies mainly to large comprehensive financial investment businesses, will be extended across the industry. Financial authorities announced the plan on 18.
Under the new standards, the valuation of stocks and bonds held by securities firms will not be taken at face value. A certain portion will be deducted from the valuation of stocks and bonds when they are recognized as liquid assets. This method of calculation reflects the difficulty of converting them into cash immediately when market prices fluctuate.
Securities firms’ earnings trends have been strong. Major securities firms reported record earnings as the stock market rose. The industry also discussed the possibility of an era of net profit reaching 10trillion won.
Results at overseas subsidiaries also improved. Net income at securities firms’ overseas subsidiaries 68% higher. However, losses were recorded in China and Japan.
The performance of exchange-traded funds that invest in securities stocks diverged from earnings. Although securities firms posted strong results, ETFs investing in securities stocks performed poorly. The price performance of related products was weak.
This measure broadens the standards for securities firms’ fund management. Securities firms holding large amounts of stocks and bonds may see a reduction in the amount of liquid assets recognized under the new calculation method. The detailed implementation timeline and the extent of deductions from assessed amounts will be set out in forthcoming detailed guidelines.