Due to COVID-19 Driven Liquidity... Securities Firms Sitting on a Commission Goldmine (Comprehensive)

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 Eun-byeol] Securities firms have been beaming with joy due to the surge in liquidity following the COVID-19 pandemic. This year, they have earned an unprecedented amount of money through commission fees. The commission fees earned last month alone were the second highest ever, and when combined with profits from overseas stock investments and other operations, securities firms are expected to record their highest-ever performance this year. In March, at the early stage of the COVID-19 outbreak, securities firms showed signs of instability, prompting the Bank of Korea and the government to inject liquidity urgently, but 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 base), marking the second highest ever. This indicates 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 level was 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, "Usually, when the stock price index rises, the transaction volume also increases, so even if securities firms maintain the commission rate, the increased transactions lead to higher earnings."

Recently, the daily average stock trading volume in Korea has exceeded 30 trillion won, a significant increase. Compared to the daily average trading volume of 20.78 trillion won in April, it has increased by more than 10 trillion won. The previous day saw KOSPI trading volume at 19.88 trillion won and KOSDAQ at 16.45 trillion won, totaling over 35 trillion won. Following the COVID-19 outbreak, as money flooded globally and stock prices rose, individual investors gathered funds to invest in stocks, and the government's gradual reduction of securities transaction tax rates also had an impact. A Bank of Korea official explained, "Lowering taxes increases transactions, which indirectly increases the money securities firms earn."

Considering that the introduction of the electronic securities system in mid-September last year reduced 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 fees themselves are lower than the record high in January 2018, the surge in transaction volume has increased the earnings of securities firms.

Looking at the cumulative GDP growth rate for the first to third quarters this year, the financial and insurance industry's GDP increased by 7.9% compared to the same period last year, the highest among industries. While transportation (-15.0%), wholesale and retail, accommodation and food services (-5.2%), and culture and other services (-16.0%) saw sharp declines, the financial industry benefited from COVID-19.

Since the increase in transaction volume due to rising stock prices is expected to continue into early next year, securities firms' strong performance is likely to persist. According to financial information provider FnGuide, the operating profit of five securities firms (NH Investment & Securities, Samsung Securities, Kiwoom Securities, Mirae Asset Daewoo, Korea Financial Group) in the fourth quarter of this year is projected to be 1.0927 trillion won, a 25.70% increase from 869.3 billion won in the same period last year. Thanks to this earnings surprise, many firms are expected to increase dividends.

Not only the money earned from commissions but also the profits from overseas stock investments and other sources are expected to have grown. Globally unprecedented levels of liquidity have flowed into risky assets such as stocks, driving up stock price indices. According to a report by Nihon Keizai based on data from the financial information provider Quick FactSet, the global market capitalization of listed stocks reached $100.1872 trillion (approximately 11 quadrillion won) as of the 18th. This is a 17% increase compared to the end of last year, just before the COVID-19 outbreak. The global market capitalization of listed stocks exceeds the International Monetary Fund's (IMF) estimate of this year's global nominal GDP ($83 trillion) by more than 20%. The S&P 500 index has risen about 14% compared to the end of last year.

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