South Korea will broaden exchanging its foreign-exchange market and ease rules against overseas investors in a bid to support more foreign participation – – reversing a decades-old arrangement expected to restrict volatile capital flows. Onshore dollar-won spot market exchanging hours will be expanded significantly from the current 9:00 a.m to 3:30 p.m. local time span, the finance ministry said in an assertion Tuesday, without giving subtleties. Restrictions against foreign financial firms exchanging the won abroad will likewise be facilitated.
The government in February will push for talks with MSCI Inc. to join its developed-market equities index, after preparing a final plan based on domestic and external feedback, the statement said.
“It is desirable that we push forward such measures as fast as possible, but not to the extent where financial players are not able to prepare for the changes,” Kim Dong-ick, director of the finance ministry’s international finance bureau, said in a phone interview after the announcement.
Authorities have initiated a slew of measures to court foreign investors and boost the case for the nation’s stocks to be included in MSCI’s developed-market stock index. A local foreign-exchange committee has been looking into ways to address the challenges faced by global funds that trade the won outside local hours.
Discussions over the extension of trading hours for the currency market have been ongoing for a while. The efforts intensified in December when the government said it would overhaul the law on FX transactions this year, and introduce an electronic platform to grant foreign investors and local firms access to real-time data and trading.
South Korea has been wary of opening up its foreign-exchange market after two financial crises since 1997 triggered capital outflows. Given the restricted hours, overseas investors currently rely on non-deliverable forwards to manage their exposure to the won offshore.
The first draft of details on the FX systems reform will be prepared within the first half of the year, while the electronic platform will go into effect sometime in the latter half, according to the statement.
Trading by Phone Holds Back Korea’s $52 Billion FX Market
Extended trading hours for the won will also address one of MSCI’s key concerns about including South Korean equities in the MSCI World Index. The index provider will release the results of its review next month, and South Korea is seeking an upgrade from emerging- to developed-market status. The finance ministry also said it will consider market conditions before revising other rules, including the cap on banks’ FX forward positions and FX liquidity coverage ratio, which were eased during the height of the pandemic to boost liquidity. It will take timely steps to stabilize markets if volatility increases, the statement said.
News Summary:
- South Korea to expand forex trading and ease rules for global funds
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