South Korea offers relief to battered brokerages

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Reuter / Yoo Choon-sik

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Mar 25, 1997, 3:00:00 AM3/25/97
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<I><A HREF='http://www.clari.net/'>ClariNet</A> <CLARI-ITEM TYPE>story</CLARI-ITEM> <B><CLARI-ITEM SLUGWORD>KOREA-REFORM</CLARI-ITEM></B> from <CLARI-ITEM FROM>Reuter / Yoo Choon-sik</CLARI-ITEM></I><BR>
<H1><CLARI-ITEM HEADLINE>South Korea offers relief to battered brokerages</CLARI-ITEM></H1>
<I><B><CLARI-ITEM COPYRIGHT>Copyright 1997 by Reuters</CLARI-ITEM></B></I> / <I><CLARI-ITEM DATE>Tue, 25 Mar 1997 4:24:02 PST</CLARI-ITEM></I><P>
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<P> SEOUL, March 25 (Reuter) - South Korea on Tuesday unveiled
steps to bring relief to local stock brokerages whose earnings
have been savaged by falling share prices.</P>
<P> The first measure would allow brokerages to issue corporate
bonds, reducing the cost of their funds.</P>
<P> A second would expand the ceiling on their investments in
individual listed companies to 15 percent from the current five
percent. This would allow them to take strategic stakes in
promising stocks.</P>
<P> The two measures were the highlights of a package of reform
proposals by a committee established by President Kim Young-sam
to chop administrative red-tape from the economy.</P>
<P> ``Brokerage firms will be able to raise cheaper funds and
form portfolios with a longer-term view,'' said Shim Choong-bo,
research manager at Daishin Securities.</P>
<P> ``The measures will be implemented as soon as possible, some
from next month,'' said a finance ministry official who declined
to be named.</P>
<P> He said the reforms would help improve the competitiveness
of the local securities industry.</P>
<P> Stock investors welcomed the proposals. The leading South
Korean stock index added 3.51 percent, or 21.64 points, to end
at 638.90 points on expectations that brokerages would expand
stock investments on their own accounts.</P>
<P> The securities sub-index ended the day 2.1 percent higher at
853.04 points.</P>
<P> Securities firms rely heavily on short-term call money, with
rates now at around 14 percent. Corporate bond yields are about
13 percent, and far more stable.</P>
<P> In the first nine months of the fiscal year ending in March,
the book value losses of portfolios held by South Korean
brokerages expanded by 40 percent compared with the same period
a year earlier.</P>
<P> Analysts said the higher ceiling on brokerage house
investment and cheaper funds would result in greater market
stability. They said brokerages were now focussed on quick
profits.</P>
<P> ``At present brokerages are pressured to make profits in a
short period because they rely on short-term loans,'' said Min
Seung-ki, an analyst at Ssangyong Investment and Securities.</P>
<P> ``In the future they will turn more to longer-term trading,''
Min said.</P>
<P> The South Korean stock market lost about 28 percent since
the start of 1996 when the leading index stood at 888.85.</P>
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