SEJONG, Feb. 7 (Korea Bizwire) — South Korea plans to more than double its foreign-exchange trading hours and allow offshore firms to participate in the market in line with efforts to attract more investment from overseas, the financial authorities said Tuesday.
Under the plan, Asia’s No. 4 economy will extend the operating hours of its foreign exchange market — which currently runs for 6 1/2 hours from 9 a.m. to 3:30 p.m. — to 17 hours to close at 2 a.m. the day after, according to the Ministry of Economy and Finance.
The government plans to implement the new trading hours as early as the second half of 2024 after a six-month pilot run.
It will also seek to extend the trading hours around the clock down the road, depending on preparations by the banking industry.
“South Korea’s foreign exchange market has been maintaining its closed and restrictive structure for more than 20 years, traumatized by the previous crisis,” an official from the finance ministry said, referring to the Asian financial crisis in late 1990s.
The ministry said the structure has been hindering the development of the capital market and the financial industry, making Korean won-denominated assets less attractive for foreign investors.
It especially pointed out that while South Korea’s trade volume and the securities markets have posted a sharp growth over the past decade, the growth of its foreign exchange market remained sluggish due its closed nature.
The country’s exports advanced 65 percent to US$1.41 trillion won from 2008 to 2022, and the daily turnover in its stock markets more than doubled to hit $12.45 billion, the ministry said.
In contrast, the daily trading volume between the Korean won and the greenback in the interbank market came to $9 billion, only rising slightly from $7.8 billion tallied in 2008.
In order to further meet “global standards,” South Korea plans to open up its interbank foreign exchange market to offshore companies, the ministry added.
Currently, the country allows only local financial institutions approved by the government to participate in the market.
“Taking the external stability into account, instead of allowing trades of the Korean won offshore outside local authorities’ discipline, we plan to transform the domestic foreign exchange market’s structure to become more open and competitive,” the official said.
The new policy will allow the market to open doors to registered foreign institutions (RFI), including global banks and brokerage houses. Principal trading firms or hedge funds, however, are excluded.
“(The measures) will lead to higher trading volume and invite more market participants with different motivations, contributing to the market stability,” the ministry said.
The government plans come up with detailed monitoring measures, including ways to directly intervene into transactions made by RFIs if necessary,
The changes will also beef up the Korean won’s status in the global market in the longer term, which may help ease South Korea’s dependence on foreign currencies, it added.
The government plans to hand in the revisions for the Foreign Exchange Act to the parliament in the third quarter of 2023.
The latest measures to revamp the financial market system fall in line with South Korea’s efforts to win developed market status from Morgan Stanley Capital International (MSCI).
MSCI has classified the South Korean stock market for years as an emerging market, saying the absence of an offshore currency market for the Korean won is one of the main reasons for its decision.