"Entry Barriers Rise Next Year": Why Securities Firms Are Rushing to Upgrade as Jongtusa [Jongtusa Upgrade] ①

Seven Firms Enter the Race
First IMA and Sixth Mega IB Expected in the Second Half of the Year

As financial authorities move to expand the corporate finance sector, securities firms have recently accelerated their efforts over the past month. In the second half of this year, as many as seven securities companies are expected to apply for designation as comprehensive financial investment business entities (so-called "Jongtusa") to operate "issuance notes" or "Integrated Management Accounts (IMA)." In addition to each company’s judgment that an upgrade is needed to secure new growth engines, there is also the practical reason that, starting next year, the entry threshold for every stage of Jongtusa designation will become higher. The strong determination of the authorities to foster a "Korean-style Goldman Sachs," which has remained only a slogan for years, is also pushing these firms forward.

According to the financial investment industry on May 7, the Financial Supervisory Service will launch an Issuance Note and IMA Licensing Task Force (TF) under the Capital Market Supervision Bureau this week, ahead of the Jongtusa application process scheduled for July. This comes about a month after the Financial Services Commission convened securities firm CEOs to announce improvements to the Jongtusa system aimed at enhancing the qualitative competitiveness of corporate finance.

Currently, among the ten Jongtusa in Korea, about seven securities firms are planning to apply for Jongtusa status this year, either at the 4 trillion won or 8 trillion won capital thresholds. Specifically, these include: ▲ Korea Investment & Securities and Mirae Asset Securities, which are aiming for the title of the first IMA operator (requiring at least 8 trillion won in equity capital); ▲ Samsung Securities, which plans to first obtain approval for issuance notes as a large-scale investment bank (IB) before entering the IMA business; and ▲ Meritz, Hana, Shinhan Investment, and Kiwoom Securities, which are targeting entry as the sixth large-scale IB and approval for issuance notes (requiring at least 4 trillion won in equity capital).

Since the announcement of the new system, these firms have either officially declared their intention to apply or have been reorganizing internal structures to prepare for the application process. An industry official stated, "There is strong anticipation that not only will the first IMA operator, which has been absent since the system’s introduction, emerge within the year, but also that several firms could be designated as large-scale IBs simultaneously."

The primary reason behind this acceleration is the industry’s survival competition, where "size equals performance." As companies progress through the stages?Jongtusa entry (3 trillion won in equity capital)→issuance note approval (4 trillion won)→IMA business entry (8 trillion won)?they can expand into new, more profitable business areas. Hwang Se-woon, Senior Research Fellow at the Korea Capital Market Institute, commented, "Ultimately, it’s a matter of economies of scale."

The most aggressive player is Korea Investment & Securities, which is aiming for the title of the first IMA operator. To become a global IB like Goldman Sachs, it is essential to operate an IMA, which allows the company to invest customer deposits in corporate finance-related assets. Furthermore, Korea Investment & Securities is already issuing nearly the maximum allowed amount of issuance notes permitted for Jongtusa with over 4 trillion won in equity capital.

Additionally, Samsung Securities, which previously entered the large-scale IB sector but did not receive approval for issuance notes; Meritz Securities, which urgently needs to diversify its revenue sources beyond real estate finance; and Kiwoom Securities, which has identified issuance notes as a future growth engine, are all in urgent need of moving to the next stage. Industry insiders estimate that the potential revenue from issuance notes approval could exceed 100 billion won.

The second reason for the accelerated pace is the practical reality that the requirements for Jongtusa designation will become stricter starting next year. The system improvements announced by the Financial Services Commission last month include new requirements for Jongtusa designation from next year, such as a record of sanctions (social credit). The financial authorities have also clarified the growth path from 3 trillion won to 4 trillion won to 8 trillion won in equity capital, and have stipulated that companies must operate at each stage for at least two years before advancing to the next.

For securities firms in urgent need of an upgrade, this year is effectively the last opportunity to obtain business approval relatively easily. This is why not only Kiwoom and Meritz Securities, which have long signaled their intention to pursue large-scale IB status, but also Shinhan Investment, which had been passive in business expansion after last year’s ETF LP incident, have now officially declared their intention to seek issuance note approval. A financial authority official stated, "Since sanctions or records of financial accidents increase uncertainty and risk, there is a movement to obtain approval before regulations become even stricter."

The strong determination of the financial authorities to foster a Korean-style Goldman Sachs is also cited as a reason for the accelerated moves by securities firms. As major countries enter an interest rate cut cycle and global investment capital begins to flow, there is a growing call for Korea to have a world-class large-scale IB. Hwang noted, "This perspective is a consensus, whether among conservatives or progressives," suggesting that, regardless of the presidential election, policy tailwinds based on the authorities’ determination could be expected. According to the Financial Services Commission, the corporate finance competitiveness of Korean Jongtusa in Asia ranks outside the top 50.