Securities firms are pushing a plan to pay interest during the period when investors' deposits are tied up in the process of subscribing to initial public offering (IPO) shares. If an annual interest rate of 1% is applied based on last year's subscription deposits, it is estimated that up to 31.5 billion won will be returned to investors annually. As financial regulators urge the securities industry to expand its social responsibility, moves to reduce investor costs, such as lowering interest rates on sale collateral loans, are also spreading.
According to the financial investment industry on the 30th, securities firms handling IPO subscription business recently held practical meetings centered on the Korea Financial Investment Association to discuss plans for paying interest on subscription deposits to investors. The meetings were conducted in three groups, and specific plans are being negotiated. A senior official in the financial investment industry stated, "We are reviewing whether interest can be paid on subscription deposits centered on the association," adding that "most securities firms have participated in the consultations."
If securities firms apply an annual interest rate of 1%, it is estimated that up to 31.5 billion won will be paid to general investors. According to the Financial Supervisory Service, total annual subscription deposits from general investors last year amounted to 383 trillion won. Considering that deposits are typically tied up for an average of three days, interest payments of up to 31.5 billion won are possible. Calculations show that if the interest rate is 2% annually, 63 billion won can be paid, and at 3%, 94.4 billion won can be paid. However, if securities firms deduct costs incurred during the subscription process, the actual amount paid as interest may be smaller.
Following Daishin Securities' decision to become the first in the industry to pay interest on subscription deposits, other securities firms are expected to follow suit. A senior official at a major securities firm said, "It seems that detailed industry-level guidelines will be established," adding, "Once standards are set, we plan to review and respond to necessary matters."
Daishin Securities announced on the 23rd that it would pay interest by applying an annual rate of 1% to subscription deposits of 1 million won or less, and 0.6% annually to amounts exceeding that threshold. This applies to IPO subscriptions for companies that submitted securities registration statements after the 21st. Considering the subscription process, interest payments are expected to begin in October.
The discussion on paying interest on IPO subscription deposits aligns with the Financial Services Commission's push to expand investor benefits as a policy task for the second half of the year. The FSC stated in a briefing on its second-half business report last July that it would improve regulations to allow interest payments on IPO subscription deposits. At the time, Ko Young-ho, section chief of the Capital Markets Division at the FSC, explained, "Deposits paid when investing have the same legal nature as IPO subscription deposits, yet interest is paid on investment deposits under the name of deposit utilization fees," adding that it is "returning profits remaining from the management of IPO subscriptions to individuals."
The discussion on paying interest on subscription deposits also aligns with recent trends in which financial regulators have demanded expanded investor benefits from the securities industry. Lee Chan-jin, head of the Financial Supervisory Service, stated at a meeting with securities firm CEOs (chief executive officers) the previous day that "the social contribution performance of the securities industry lags significantly behind banks and others," urging them to "self-check whether they are contributing commensurate with their increased size and role."
Another move to reduce investor burden is lowering interest rates on sale collateral loans. The interest rates for sale collateral loans at the top 10 securities firms currently range from 4.65% to 8.75% annually, following a series of rate cuts by securities firms in July and August. Meritz Securities lowered its rate to 4.65% annually, Daishin Securities to 5%, and Shinhan Investment Corp to 6.95%. NH Investment & Securities is the only firm still applying an interest rate in the 8th% range.
The FSC also presented lowering interest rates on sale collateral loans as a tangible task for the public ahead of shortening settlement from T (trading day) + 1 day to T+0. Shin Jin-chang, secretary-general of the FSC, stated last July that "we will reduce investors' funding burden by lowering the average annual rate of 9%, which is higher than in Japan, before shortening the settlement cycle to T+1."
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