Due to COVID Liquidity... Securities Firms Sitting on a Goldmine of Fees

Record High Earnings from Commissions Amid Soaring Stock Prices
Last Month's 'Financial and Insurance Auxiliary Services' Inflation Hits Second Highest Ever
This Year's Securities Firms Expected to Set All-Time Performance Record

[Asia Economy Reporter Kim Eunbyeol] Securities firms have been beaming with joy due to the liquidity that surged rapidly after the outbreak of the novel coronavirus infection (COVID-19). They earned an unprecedented amount of money this year through commission-based business. The commission income earned last month was the second highest ever, and when combined with the profits from overseas stock investments and other operations by securities firms, this year is expected to record the highest performance in history. Even though securities firms showed signs of instability in March, the early stage of the COVID-19 spread, prompting the Bank of Korea and the government to inject liquidity urgently, the situation reversed in just over nine months.

According to the Bank of Korea on the 23rd, the price index for 'Financial and Insurance Auxiliary Services' last month was 121.41 (2015=100 basis), marking the second highest ever. This means that the money earned by financial companies from stock trading commissions was the second largest in history. Most of the 'Financial and Insurance Auxiliary Services' price index is accounted for by brokerage commissions. Since January 1995, when the Bank of Korea began compiling related statistics, the highest price index was recorded in January 2018 (122.52).

The Bank of Korea calculates the service prices of financial companies as part of the producer price index, one of the three major price indicators. The money earned from commissions is estimated separately by multiplying the commission rate cost (excluding taxes) by the stock price index. A Bank of Korea official said, "Typically, when the stock price index rises, the trading volume also increases, so even if securities firms maintain the commission rate, the increased trading volume leads to higher earnings."

Recently, the daily average trading volume of domestic stocks has surged to over 30 trillion won. This is more than 10 trillion won higher compared to the daily average trading volume of 20.78 trillion won in April. On the previous day, the KOSPI trading volume was about 19.88 trillion won, and KOSDAQ was about 16.45 trillion won, exceeding 35 trillion won in total. As money flooded worldwide following the COVID-19 crisis and stock prices rose, individual investors also gathered funds to invest in stocks. Additionally, the government's gradual reduction of securities transaction tax rates has had an impact. A Bank of Korea official explained, "Lowering taxes increases trading, so it can be seen as indirectly increasing the money earned by securities firms."

Considering that the electronic securities system was introduced from mid-September last year, reducing settlement fees by about 10%, one can sense how much stock trading volume has increased. This system allows trading without issuing physical securities, thereby lowering fees. Therefore, although the commission itself has decreased compared to January 2018, when the 'Financial and Insurance Auxiliary Services' price index was at its highest, the surge in trading volume has increased the earnings of securities firms. Looking at the cumulative GDP growth rate for the first to third quarters of this year, the financial and insurance industry's GDP increased by 7.9%, the highest among sectors. While transportation (-15.0%), wholesale/retail and accommodation/food services (-5.2%), and culture/other services (-16.0%) saw sharp declines, the financial industry benefited from COVID-19 as a positive factor.

An employee is working in the dealing room at the headquarters of Hana Bank in Jung-gu, Seoul. [Photo by Yonhap News]

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