Brokerages race to lock in customer assets as Fed raises rates

South Korean brokerages are intensifying their battle for customer assets as the Federal Reserve raised its benchmark interest rate for the first time in three years. Ahead of the move, securities firms had already pushed rates on their proprietary short-term notes as high as 5 percent annually and offered elevated yields on derivative-linked bonds and integrated management accounts. The competition has spread well beyond product rates, with firms dangling new-money incentives, asset-transfer promotions and cross-product perks to hold on to customer funds. A broader pullback in stock trading and a shrinking pool of equity market money — both consequences of the high-rate environment — have added urgency to the push.

The Fed raised its benchmark interest rate by 25 basis points Wednesday (local time) at its regular Federal Open Market Committee meeting, lifting the target range from 3.50–3.75 percent to 3.75–4.00 percent, according to the financial investment industry. FOMC members voted unanimously for the increase. The median year-end rate projection came in at 4.1 percent, signaling one additional hike before the end of the year.

Brokerages had already moved to raise product rates and yields ahead of the FOMC decision. As of Tuesday, the total balance in cash management accounts stood at 103.77 trillion won, according to the Korea Financial Investment Association. Of that, proprietary-note CMA balances accounted for 23.24 trillion won, or 22.4 percent of the total. CMA accounts serve as a holding pool for investors' idle funds and act as a key gateway for brokerages, since that money often flows into equities, bonds, funds and other financial products.

A 5 percent annual rate has now appeared in the proprietary-note market. Proprietary notes are short-term financial instruments with maturities of up to one year, issued on their own credit by large brokerages designated as mega investment banks — a status that requires equity capital of at least 4 trillion won ($2.92 billion). Firms can issue notes worth up to 200 percent of their equity capital, making them a primary funding tool for corporate finance and other business activities.

Competition in the proprietary-note market has also grown as new players enter. Samsung Securities recently received a short-term finance license, bringing the total number of proprietary-note issuers to eight, joining Mirae Asset Securities, Korea Investment & Securities, NH Investment & Securities, KB Securities, Kiwoom Securities, Shinhan Securities and Hana Securities. The mandatory allocation of proprietary-note proceeds to venture capital is also set to rise in stages — from 10 percent this year to 20 percent in 2027 and 25 percent in 2028. As that requirement grows, the ability to generate returns by deploying the funds is becoming just as important as the volume raised.

Kiwoom Securities launched a special proprietary-note offering at 5 percent annually before tax, with a one-year maturity, targeting first-time account holders. Investors who open a non-face-to-face account, apply for the promotion and maintain an average balance of at least 10 million won ($7,310) in the special note over three months will also receive 50,000 won worth of fractional shares in either Samsung Electronics or SK hynix.

Korea Investment & Securities is selling its "First Special Proprietary Note," offering 4.9 percent annually for a one-year maturity and 4.7 percent for six months, both on new money. A six-month special offering from Shinhan Securities targeting individual customers — the "Shinhan Premier Proprietary Note" at 4.5 percent annually before tax — sold out its 30 billion won limit within five hours of its Monday launch.

Woori Investment & Securities, which does not issue proprietary notes, also raised rates on its deposit products in response to rising market rates. On Sept. 10, it lifted the one-year rate on its "Proprietary-Note Fixed Deposit," a trust-type product, to a maximum of 4.05 percent annually for non-face-to-face accounts, and raised rates on its "CMA Note" and "Woori WON CMA Note" sweep products by 0.10 to 0.20 percentage points across all tiers. "We raised rates on fixed deposits, CMA products and other deposit instruments so that customers can feel the benefit directly during a period of rising market rates," a Woori Investment & Securities official said. "We will continue to roll out competitive financial products suited to customers' fund management goals and time horizons."

The race for customer funds has also spread to derivative-linked bonds. A derivative-linked bond, or DLB, is a debt instrument whose returns are tied to the movement of underlying assets such as interest rates or stock indexes, with the brokerage raising and managing customer funds on its own credit. Hanwha Investment & Securities on Tuesday sold "PLUS DLB No. 1," capped at 20 billion won. The five-year product pays an annual return of 7.5 percent for any period in which the 91-day certificate of deposit rate stays at or below 4.4 percent.

Yield competition is also playing out in the IMA market. An IMA is a product in which a brokerage deploys customer deposits into corporate finance assets such as business loans and bonds, then passes the returns back to customers, with the firm guaranteeing repayment of principal. For large brokerages, IMAs — alongside proprietary notes — are a core business tool for raising large-scale funds to deploy in corporate finance and venture capital.

Mirae Asset Securities raised the benchmark yield on its three-year "Mirae Asset IMA No. 4" from 4 percent to 5 percent annually. Korea Investment & Securities is offering a 5 percent annual benchmark yield on its three-year-and-six-month "Korea Investment IMA G1." NH Investment & Securities also lifted the benchmark yield on its two-year-and-three-month "N2 IMA1 Mid-Term No. 3" from 4.0 percent to 4.5 percent annually.

The competition for customer assets goes beyond raising product rates and yields. Korea Investment & Securities is running a promotion through the end of this month for individual customers with branch accounts, offering gift vouchers worth up to 200,000 won by lottery based on net asset increases across major products — including CMA, funds, bonds, equity-linked securities, repurchase agreements, proprietary notes, wrap accounts and IMAs. Customers who transfer bonds worth 10 million won or more from another financial institution receive additional lottery entries. The firm also gave Bankis platform customers purchasing access to special proprietary notes of up to five times their IMA subscription amount through "Korea Investment IMA S6," launched last month.

"We are improving customer accessibility through diverse subscription channels and benefits," an industry official said. "In a high-rate era, competition across a wider range of products tailored to customers' investment goals and needs will only grow."