New Face in 12 Years: 'Toss Securities' Establishment Imminent... Capital Securing Remains a Challenge

Preliminary Approval for Securities Firm Establishment Passed
Mobile-Only Without Branches
Profit Outlook Uncertain Amid Industry Downturn

[Image source=Yonhap News]

[Asia Economy Reporter Park Ji-hwan] The establishment of a securities firm by Viva Republica, the operator of the simple remittance service 'Toss,' is imminent. Although this is news of a new securities firm after 12 years, the outlook is not entirely bright as even existing securities firms are facing emergencies in securing profitability. While it is evaluated to have competitiveness in the existing brokerage market, it is expected that securing profitability will not be easy due to insufficient capital size in investment banking (IB) and asset management, which are rapidly emerging as future growth engines in the securities industry.

According to financial authorities on the 12th, the Securities and Futures Commission under the Financial Services Commission held a regular meeting the day before and passed the preliminary approval for the establishment of a securities firm applied for by Viva Republica. This comes nine months after applying for preliminary approval for financial investment business in June last year. The preliminary approval passed by the Securities and Futures Commission must go through a regular meeting of the Financial Services Commission, and it is expected to be finally approved at the meeting scheduled as early as the 18th. Afterward, if the company completes the necessary personnel and physical facilities and obtains the final approval within six months, it can immediately start securities business. This marks the birth of a new securities firm for the first time in 12 years since IBK Investment & Securities and KTB Investment & Securities were established in 2008.

Industry insiders expect that Viva Republica's establishment of a securities firm will proceed to final approval by financial authorities without major difficulties. This is because the unstable capital structure pointed out during the Financial Supervisory Service's review process was resolved. At that time, the financial authorities raised concerns that 75% of Viva Republica's capital of 13.4 billion KRW consisted of Redeemable Convertible Preferred Shares (RCPS). The authorities judged that RCPS cannot be considered true capital and that such a capital structure is inappropriate for the securities business. In response, Viva Republica held an extraordinary shareholders' meeting in November last year and converted all previously issued RCPS into convertible preferred shares.

Viva Republica plans to establish Toss Securities (tentative name) as a mobile-only securities firm without branches. The main business direction is set as investment brokerage, mediating the trading of stocks, bonds, and other securities. Initially, it plans to focus on the brokerage market using a mobile trading system (MTS). The strategy is to provide simple securities investment services to the 20-30 age group, which accounts for 60% of the 16 million Toss members.

For now, the advantage lies in the ability to conduct stock brokerage using a large customer base. Convenience and connectivity through smartphones will enable users with limited assets to invest in various financial products.

Kim Go-eun, a researcher at Meritz Securities, explained, "Since the main customers are in their 20s and 30s and the service is based on remittance and payment, services like Acorns, which automatically invest spare change from card payments into exchange-traded funds (ETFs) and funds, are expected to be attempted."

However, the recent rapid shift in securities firms' revenue structure from traditional brokerage to investment banking and asset management through capital expansion is a burden. While Toss Securities may demonstrate competitiveness in market share in brokerage, existing securities firms have already engaged in free stock commission competition, making it difficult to translate this into profits. Moreover, it is not easy to stand out immediately in IB and asset management businesses, which require long experience and offline sales channels.

Ultimately, the fate of Toss Securities is expected to depend on how much it can increase its capital in the future. The current capital of around 10 billion KRW is not expected to have a significant market impact. Large securities firms are already generating substantial profits through proprietary investment (PI) and margin loans, leveraging their large capital bases, and are fighting to increase capital size for further business expansion into investment banking and asset management.

This content was produced with the assistance of AI translation services.