Korea Capital Market Institute

Currently, Korean securities companies are not allowed direct access to the retail payment system, but rather, only indirect access through the bank accounts, leading to inconvenient transactions for individual investors and inferior competitiveness of the securities industry. In order to improve this situation, the Korean government is trying to permit the industry to directly access the system. This paper examines why the industry requires direct access and which settlement risks the current securities accounts have. In addition, based on this research, we suggest plausible and desirable securities accounts for the payment instruments. We claim that the access should be allowed in order to improve transaction convenience for the investors and competitiveness of the securities industry. An exemplary securities account is made up of two parts, (i) asset value from buying securities and (ii) residual cash not used for buying assets. The latter is the so-called customers' deposit which is required by the Securities and Exchange Act to be held as reserves in the Korea Securities Finance Corporation. Thus, we conclude that the customers' deposits in the accounts should be eligible as the payment instruments. However, it should be noted that a liquidity risk between the securities companies and the Korea Securities Finance Corporation still exists. Based on the results of this research, it is suggested that a securities company yield a new payable account independent of the current securities accounts, mimicking the demand deposit account of the commercial bank, or use the customers' deposit of the stock trading account for the payable account. In principle, the payable securities accounts should be kept as far from the payment risks as possible. For example, if necessary, the securities industries could also be managed by the same regulations that the current members of the retail payment system are. Above all, it is essential to inform the investors of the responsibility of managing the accounts for the payment purpose.