Volatility Market Momentum 'Gap' Continues... Securities Firms' Commission Revenue Decline Inevitable

4Q Individual Trading Volume and Transaction Share Both Decline... Inevitable Decrease in Securities Firms' Earnings

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[Asia Economy Reporter Minwoo Lee] As stock market trading volume decreases, securities firms' brokerage-related earnings in the fourth quarter of this year are expected to decline. Analysts point out that amid increased market volatility, there continues to be a lack of upward momentum to drive a rebound.

According to the Korea Exchange on the 2nd, the average daily trading volume in the KOSPI and KOSDAQ markets last month was approximately 25 trillion won. Although this is an increase from 22.7 trillion won in the previous month, it is lower compared to 26.2 trillion won in the third quarter. The trading volume for October to November was around 23.8 trillion won. Considering that trading volume typically decreases in December, the fourth quarter trading volume is likely to drop by 5-10% compared to the third quarter, reaching the lowest level of the year.

Individual investors' average daily trading volume is also decreasing. It was 16 trillion won in October and 17 trillion won in November, down from 23 trillion won in the first half of the year and 19 trillion won in the third quarter. The proportion of individual trading, which was as high as 78% in the first half, also decreased to 71% in October and November. However, the KOSDAQ turnover rate, which reflects individual investors' activity, is currently around 700%, reflecting the recently increased market volatility. Although it has declined compared to the first half, it remains historically high.

Customer deposits stood at 65.982 trillion won as of the end of last month, remaining stagnant without significant change since the second half of the year. Margin loan balances also slowed after surpassing 25 trillion won in September, recording 23.453 trillion won at the end of last month. Researcher Bae-Seung Jeon of Ebest Investment & Securities explained, "Although the scale of funds around the stock market remains high, the inflow of individual funds into the stock market has weakened due to deteriorating market conditions and lending regulations."

Accordingly, securities firms' brokerage-related earnings in the fourth quarter are expected to decrease compared to the previous quarter. This includes commission income from reduced trading volume as well as interest income from margin loans, which is likely to decline. Researcher Jeon analyzed, "The average margin loan balance in October and November decreased by 4.8% compared to the third quarter, and it is known that the credit extension limits of major securities firms are approaching their maximum."

Although market interest rates showed a downward trend, the significant increase in stock market volatility has worsened overall operating conditions. It is also highly likely that trading division performance will decline compared to the third quarter. Meanwhile, concerns over the spread of the new COVID-19 variant 'Omicron' are expected to negatively impact the resumption of investment banking (IB) and investment activities, which are crucial for improving securities firms' future earnings. Researcher Jeon emphasized, "Although recent stock price adjustments have increased the valuation attractiveness of securities stocks overall, the momentum gap continues," adding, "It is necessary to pay close attention to future changes in domestic and international liquidity conditions and the resumption of risk appetite."

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