The Financial Supervisory Service (FSS) is set to conduct field inspections of the captive sales practices of securities companies starting from next month. This comes as concerns have been raised regarding captive sales being a primary cause of distortion in corporate bond interest rates, prompting the supervisory authority to initiate investigations. The FSS will begin inspections with Mirae Asset Securities and Samsung Securities among major securities firms.
According to the financial investment industry on the 10th, the FSS will conduct field inspections of Mirae Asset Securities and Samsung Securities for 15 business days from the 21st of this month until the 15th of next month. It is reported that the FSS plans to expand inspections to other comprehensive financial investment businesses, such as KB Securities, NH Investment & Securities, and Daishin Securities, starting with the two securities firms.
Captive sales refer to the practice where securities firms promise to invest in corporate bonds when listed or unlisted companies issue these bonds, mobilizing their own and affiliated financial companies in the debt capital market (DCM). As competition for captive sales among securities firms heats up in the DCM market, concerns have been raised that appropriate interest rates cannot be determined in line with the issuer's creditworthiness.
It has been pointed out that as securities firms take on the role of lead underwriter for corporate bonds and accept the interest rates demanded by issuers, side effects occur, resulting in rates being set lower than the appropriate level. Additionally, concerns have been raised over repeated unfair trading practices where securities firms underwrite corporate bonds with their own funds and then incur losses when disposing of them.
In the industry, it is said that the issuance of corporate bonds by HD Hyundai Infracore and HD Hyundai Construction Equipment in the first quarter of last year marked the starting point of overheated competition in captive sales among securities firms. During that time, competition intensified during the corporate bond demand forecast, resulting in unusually low pricing for orders. Many securities firms competed to present captive volumes, allowing issuers to opt for lower interest rates.
In relation to this, the FSS had received related materials from securities firms regarding corporate bond demand forecasts last May. Additionally, it has recently requested the submission of materials related to corporate bond transaction records. After reviewing the materials, the FSS plans to ascertain whether securities firms violated any laws through this field investigation.