Eased Rules Aim To Draw Global Capital, But Regulators Worry About Delayed Oversight And Market Volatility
Securities companies' buildings in Yeoiedo , Seoul
Domestic brokerages have recently been moving swiftly to introduce foreign omnibus accounts and forge partnerships with global platforms. The strategy is to get ahead of the curve in attracting large-scale foreign capital into a KOSPI market surging past 7,000 and eyeing the 8,000 mark, but some quarters have raised concerns over unfair trading practices and capital flow volatility.
According to financial investment industry sources on May 11, domestic brokerages including Samsung Securities, Kiwoom Securities, KB Securities, Hana Securities, and Mirae Asset Securities are throwing their full weight behind attracting foreign omnibus account services and building the systems to support them.
A foreign omnibus account is a service that allows foreign investors to trade Korean stocks through a global fintech platform or an overseas brokerage without having to open individual accounts at domestic brokerages one by one. The financial authorities have lowered regulatory barriers since January of this year to strengthen the inflow of foreign capital, abolishing restrictions on who can open omnibus accounts and streamlining the reporting frequency from immediate submission (within T+2 days) to once a month.
On the company-by-company front, partnerships with major global platforms are taking concrete shape. Samsung Securities has teamed up with Interactive Brokers (IBKR), the largest U.S. online brokerage firm with approximately 4.6 million customer accounts worldwide, and launched a pilot operation of its foreign omnibus account service at the end of last month. The move has been credited with proactively building the foundation that allows overseas investors to buy and sell Korean stocks through their existing systems just as they always have.
Kiwoom Securities, a dominant force in domestic brokerage, also entered into a strategic partnership with global platform Webull in February and is pushing to attract foreign investment capital. The strategy is to leverage its know-how as the top player in domestic retail market share to draw in foreign investors who are keeping a close eye on the Korean stock market.
The race is intensifying on the speed front as well. KB Securities and Hana Securities are in the final stages of preparation, targeting the official launch of their foreign omnibus account services by the end of June. Hana Securities in particular has been ramping up its first-mover efforts, expanding from an initial transaction with Hong Kong’s Emperor Securities last year to more recently adding Japan’s Capital Partners Securities to its reach.
Mirae Asset Securities is also continuing discussions toward launching a visible service model by year-end, working to improve the efficiency of its omnibus account service through coordination with its global subsidiaries. Beyond these, Meritz Securities and NH Investment Securities are also planning to launch foreign omnibus account services.
The intensity with which brokerages are throwing themselves into attracting omnibus accounts reflects a broader shift in how foreign investors view the domestic market and in the overall market environment. Some observers argue that, with KOSPI approaching the 8,000 mark, growth driven solely by domestic retail investor trading volume has its limits.
On the flip side, questions remain over whether risk management will actually be easy to execute. The monthly post-event reporting system, which took effect in January of this year, has significantly reduced the administrative burden on overseas financial institutions linking foreign omnibus accounts through partnerships with domestic brokerages, but critics have pointed out that it has, by the same token, loosened the financial authorities’ real-time surveillance net.
Under the previous intensive reporting framework, it was possible to identify the ultimate investor at the same time an order was placed. Going forward, however, even if signs of suspicious trading are detected, there could be a lag of up to a month before the actual order placer can be identified. This leaves open the possibility that timely investigations could be impeded when unfair trading practices such as market manipulation or the use of undisclosed information occur.
Furthermore, as the barriers to entry for foreign capital into the domestic market have been lowered, the possibility of an excessive outflow of funds cannot be ruled out should an external variable capable of moving global markets emerge. The concern is that this could amplify volatility in the domestic stock market.
An official at one brokerage currently preparing to launch an omnibus account service said, “Foreign omnibus accounts are an essential gateway for the inflow of global capital, but at the same time they present brokerages with a weighty challenge on the systemic side,” adding, “Beyond strengthened ex-post oversight by the financial authorities, brokerages themselves will need to respond by establishing advanced AI-based monitoring systems capable of detecting abnormal transactions in real time, among other measures.”
Yoon Young-sil
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