Capital Market Experiencing
Dynamic Changes

New financial products, financial techniques and hedge funds to emerge under new capital market law

Deputy Prime Minister and Finance and Economy Minister Kwon O-kyu said the government will create an environment where market participants can engage in dynamic and innovative activities. He made the speech at the Korea Capital Market Congress May 11 in Seoul.
With the pending enforcement of the new Capital Market Consolidation Act in 2009, revolution in Korea's financial markets and industry has already begun. Once the law is enforced in 2009, obstacles that blocked competition among industries and regulations that limited the development of new and creative products will be eliminated, the top economic policymaker said.
This will allow financial institutions to develop brand-new and more attractive financial products to provide investors. At the same time, they will be able to provide companies with an optimal means of capital funding through efficient and cutting-edger financial techniques as capital intermediaries.
Together with the reform of Korea's financial laws and regulations, the government plans to deregulate the market by reshaping financial supervision.
The DPM said the government will also remove inconsistencies in regulations based on differences in the jurisdiction of the various financial supervisory bodies by adopting the 'same regulation'for the same function approach.
When the key function of financial supervision rested on 'directive authority'as financial market regulators, the focus was on how to detect violations by financial institutions and implement corrective measures after the fact.
Going forward, he said, the government plans to transform the role of the regulator into that of a facilitator serving as an "advisory authority."With the change, the regulator in the spirit of prevention and market harmony will advise financial institutions through dialogue and consultation for remedying situations that surface.
In these fast changing financial markets, with new types of derivative products, the government will also strive to develop more advanced monitoring techniques and to foster financial experts specializing in financial supervision. In addition, the government will increase its efforts to revitalize the asset management industry by diversifying sales channels for funds and continuously deregulating various restrictions on private equity funds in preparation for an aging society and the emergence of an era of indirect investment.
By minimizing investors'losses stemming from improper selling and expanding the number of fund distributors in stages, investors will eventually be able to consult with professionals and purchase funds more easily through a fund supermarket and independent financial planner system.
At the same time, once a sold foundation is laid for asset management after the Capital Market Consolidation Act takes effect, the government will consider plans for allowing hedge funds.
Some point to the side effects of hedge funds, such as increasing financial market uncertainties by pursuing excessive short-term profits and herding to take advantage of fragile, underdeveloped markets. Nevertheless, hedge funds can also be used to provide new investment opportunities to investors and to promote the development of financial techniques thereby upgrading Korea's financial markets.
The Korean government will make its best efforts to deal effectively with hedge funds by actively participating in the international efforts for setting up guidelines for their proper regulation.
Above all, however, nurturing financial experts is the center of innovation. This is because financial experts are the dominant players who design highly profitable financial products and market those products in both domestic and international markets.
The government will continue to expand networks with foreign universities and recruit foreign professionals and other experts in order to push the KAIST Graduate School of Finance to become one of the global top 100 MBA programs by 2010.
The government will also make continuous efforts to further spreads the wave of financial innovation that began with the capital markets into the wider financial industry as a whole. The government will also lead efforts for the balanced growth of the financial industry and other industries like banking and capital markets.
They can improve profit margins and increase competitiveness by increasing their size and expanding their businesses from traditional ones to other areas such as financial market. They can also secure new growth engines by entry into overseas markets. To this end, the government will help respond actively to market changes by improving financial systems. nw

Deputy Prime Minister and Finance and Economy Minister Kwon O-kyu