Meritz Securities has received approval to operate in the commercial paper issuance business. With the number of commercial paper issuers now reaching nine, market competition is expected to become even more intense.
The Financial Services Commission announced on the 23rd that at its 16th regular meeting, it designated Meritz Securities as a comprehensive financial investment company (CFIC) with net capital of at least 4 trillion won and approved its short-term financial business. As a result, Meritz Securities can now issue commercial paper up to 200% of its net capital and utilize the funds for corporate finance and other purposes. This comes approximately one year and two months after it applied for approval in July last year.
Commercial paper is a short-term financial product with a maturity of less than one year, issued by securities firms based on their own credit. Only securities firms that are CFICs with net capital of at least 4 trillion won and have received approval from financial authorities for short-term financial business may handle commercial paper. Securities firms can use funds raised through commercial paper for corporate loans, corporate bonds, equity investments, and other forms of corporate finance.
The Financial Services Commission expressed hope that Meritz Securities' entry would bring the total number of CFICs eligible to handle commercial paper to nine, enabling better response to diverse funding needs of companies, including venture capital supply.
A Meritz Securities official stated, "Based on our accumulated investment banking capabilities and risk management expertise, we will do our best to provide venture capital to innovative and growing companies." He added, "We aim to build a virtuous cycle that strengthens corporate finance competitiveness based on stable funding and provides high-quality investment opportunities for retail customers."
Meritz Securities has net capital exceeding 8 trillion won, giving it significant capacity to raise funds through commercial paper. By securing this new funding instrument, the firm has also laid the groundwork to expand its strengths in real estate finance into corporate finance and venture capital investments.
With Meritz Securities' entry, competition in the commercial paper market is expected to fully intensify. Previously, only four firms—Mirae Asset Securities, Korea Investment & Securities, NH Investment & Securities, and KB Securities—handled commercial paper issuance. However, Kiwoom Securities received approval in November last year, followed by Shinhan Investment Corp and Hana Securities in December. With Samsung Securities and Meritz Securities added this month, the number of participating firms has reached nine.
The scale of the commercial paper market is also growing rapidly. According to the Financial Services Commission, the amount raised through commercial paper increased more than threefold from 15.6 trillion won at the end of 2020 to 54.4274 trillion won by the end of March this year.
However, as the number of participants increases, the focus of competition is expected to shift from fundraising to asset management. This is because the government is strengthening the obligation for CFICs to supply venture capital and lowering the limit on real estate investment using commercial paper funds. The key to determining the success of large securities firms in the commercial paper business will be how effectively they can identify investment opportunities that channel increased fundraising capacity into actual corporate finance and venture capital supply.
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