Third inter-dealer brokerage readied in Korea

A third inter-dealer brokerage will enter the Korean debt market in March.
A consortium led by British broking house Prebon Yamane — which also operates in Hong Kong, Singapore, Malaysia and Japan — as well as 10 domestic firms, is setting up the company at an estimated start-up cost of around W3 billion ($2.4 billion).

Prebon Yamane will hold a 40% interest in the new concern, followed by Kookmin Bank, Korea Development Bank, Hanwha Securities (all 11%), Shinhan Securities (7%), Dongwon Securities (5%), Shinyoung Securities (4%), Kyobo Securities, Good Morning Securities, Pukook Securities and Daeyu Securities (all 1%).

The Korean Ministry of Finance has been keen to encourage the establishment of IDBs, believing that their presence makes for a cleaner and more efficient debt market. Essentially, IDBs act as intermediaries between major dealers to assist inter-dealer trades that help those companies balance their books. It is hoped that by making it easier to do such deals, this will induce firms into more activity and act as a boost for the Korean bond market.

In terms of their activities, these companies take no principal risk and operate on small spreads. Because of this, they make money on large deals and through preparing real-time bid and offer quotes for dealers. They aren’t allowed to trade themselves, and they also can’t be controlled through the shareholding of any one firm.

The new IDB - which has yet to be named - will follow the lead of the Korea Inter-Dealer Brokerage (KIDB), which opened for business last August, and the Korea Money Broker Corporation (KMBC).

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