Brokerage firms see $3.8 bn increase in CMA balance this year

[Photo by MK DB]

The combined balance of cash management accounts at brokerage houses has risen by about 5 trillion won ($3.8 billion) this year, as investors are depositing their cash on hand into those accounts, encouraged by interests of as high as in the 3 percent range.

Data from the Korea Financial Investment Association showed on Sunday that the combined balance of cash management accounts across all brokerage houses stood at 63.18 trillion won, the largest since Sept. 30 when the figure hit 63.20 trillion won. CMA balances have increased by 8 percent this year since the end of last year after falling by about 11 trillion won last year. The number of those accounts is 36.4 million, the largest since 2006 when CMAs were first introduced.

CMAs are instruments at securities firms where they invest customers’ deposits in government bonds, negotiable certificates of deposit or short-term corporate bonds. These accounts have no required period of deposits, making them ideal for managing short-term funds. CMAs have been popular recently among nervous investors who are seeking instruments to manage their short-term funds, like money market funds, following the economic downturn and the bankruptcy of Silicon Valley Bank.

By type, CMAs that buy brokerage house-issued notes offer slightly higher yields than those that buy repurchase agreements. Mirae Asset Securities Co. provides a yearly 3.55 percent, SK Securities Co. 3.5 percent and IBK Securities Co. 3.4 percent. For yields of note-type CMAs, Korea Investment & Securities Co. offers 3.75 percent, Mirae Asset 3.7 percent, KB Securities Co. 3.65 percent and NH Investment & Securities Co. 3.45 percent.

Note-type CMAs are available only at the four larger securities firms that have more than 4 trillion won in equity capital and tend to have higher yields as they are used for those brokerage firms to raise short-term funds based on their own credit. CMAs, however, do not guarantee investors’ principal, unlike bank deposits and savings.

Individual investors accounted for the majority of CMAs, with 36.25 million accounts and a total balance of 52.59 trillion won. Looking at individual investor CMA accounts by type, RP-types accounted for 44 percent, followed by other types at 29 percent, note-types at 23 percent and MMFs at 4 percent.

Some analysts say that the recent popularity of CMAs is because investors waiting to buy stocks tend to put their cash on hand in those accounts following higher volatility in Korean stock markets, including a sharp rise led by stocks related to batteries.

“Better market sentiment has brought an influx of individual investors, leading to an increase in deposits and CMAs,” said Pyun Deuk-hyun, a senior analyst at NH Investment & Securities. “CMAs are attractive because they have good liquidity and higher yields due to interest rate hikes.”

Meanwhile, the balance of credit loans was 18.98 trillion won as of April 5, the highest in seven months since September last year.