"Second 'Chaean Fund' 2nd Meeting on 26th... Will Self-Help Measures Emerge?"

The 2nd Chaean Fund, 2nd Discussion on the 26th
Focus on Securities Industry's Self-Help Efforts

Na Jae-cheol, Chairman of the Korea Financial Investment Association, is attending and speaking at the on-site meeting between the People Power Party Policy Committee and the financial investment industry held at the Financial Investment Center in Yeouido-dong, Yeongdeungpo-gu, Seoul on the 27th. Photo by Dongju Yoon doso7@

[Asia Economy Reporter Hwang Junho] As the aftermath of the Gangwon-do Legoland incident hits securities firms, large securities companies are pushing to pool more than 1 trillion won to create a "Sip-si-il-ban Fund" for small and medium-sized securities firms in crisis, but difficulties are expected.

According to the financial investment industry on the 26th, the second meeting to establish a 'Bond Market Self-Help Stabilization Fund' to purchase asset-backed commercial papers (ABCP) of small and medium-sized securities firms will be held at the Korea Financial Investment Association on the 26th.

Similar to the first meeting held on the 24th, this meeting was arranged following the government's implementation of a 50 trillion won liquidity supply program on the 23rd, with calls for the securities industry to make self-help efforts. The meeting, chaired by Na Jae-cheol, chairman of the Financial Investment Association, will discuss plans to form a fund or similar vehicle that pools more than 1 trillion won by having each securities firm contribute 50 to 100 billion won to purchase only ABCP from small and medium-sized securities firms. CEOs from nine large securities firms, including Mirae Asset Securities, NH Investment & Securities, Korea Investment & Securities, Samsung Securities, KB Securities, Meritz Securities, Hana Securities, Shinhan Investment Corp., and Kiwoom Securities, will attend. An industry insider explained, "This is a meeting to create a market stabilization plan through industry autonomy."

However, difficulties are expected in forming the fund. Currently, the securities industry, regardless of size, is in a situation where "everyone has their own problems," and a fierce battle to secure funds is underway. In this situation, it is highly likely that there will be resistance to providing funds to competitors, even if they are small and medium-sized securities firms. At the previous meeting, concerns were raised that "the authorities attended the meeting without disclosing the status of ABCP and the risk of insolvency of small and medium-sized securities firms," and that "if funds are provided to the fund, there could be issues of breach of fiduciary duty by CEOs."

On the other hand, some argue that the securities industry needs self-reflection, as it fails to prepare for crises during boom times, engages in high-risk investments to boost performance, and then turns to the government for help when crises occur. In particular, the government has provided support not only through this liquidity supply program but also during the dollar shortage crisis amid the COVID-19 pandemic. While direct support from large firms to small and medium-sized firms may raise breach of fiduciary duty concerns, there are opinions that alternative methods could be devised. Additionally, there are observations that the effect of the bond stabilization fund introduced by the government is limited, and if small and medium-sized firms reach the worst-case scenario, it could cause a chain reaction of bankruptcies, significantly impacting the entire industry. Regarding this, the Financial Services Commission responded, "It is true that we requested a responsible attitude from the securities industry. However, we have not discussed anything about the format, investment methods, scale, or other aspects of the meeting."

The industry expects a conclusion to be reached soon. Of the total 20 trillion won bond stabilization fund announced by the government, only about 1.6 trillion won is immediately available. Meanwhile, due to recent shortening of refinancing maturities, short-term bonds, including those of Donghwa Securities, are concentrated to mature within a short period, making it necessary to secure resources for practical support as soon as possible. Korea Credit Rating analyzed, "The support targets are bonds with excellent credit ratings (A1 or higher for CP and PF ABCP), so some small and medium-sized firms may find it difficult to directly benefit."

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