In the future, the opening hours of the domestic foreign exchange market will be significantly extended to 2:00 am the next day. In addition, foreign financial institutions will be able to participate in the domestic foreign exchange market.
The Ministry of Strategy and Finance and the Bank of Korea announced today (7th) the ‘Foreign Exchange Market Structural Improvement Plan’.
■ The closing time of the domestic foreign exchange market is extended from 3:30 p.m. to 2:00 a.m. the next day.
The government is promoting a plan to extend the closing time of the domestic foreign exchange market from 3:30 pm to 2:00 am the next day. The government plans to first extend the closing time of the London financial market until 2:00 a.m. Korean time, but later expand it to a 24-hour opening in consideration of market conditions.
Global investment institutions calculate asset holdings by currency at the exchange rate at 4:00 pm London time (1:00 am in Korea), but there is a difficulty in that there is no exchange rate to apply to the won. It is currently evaluated at 3:30 pm, the closing price of the Korean market, so the standard is different from other currencies.
The standard trading rate, the market average exchange rate, is calculated from 9:00 a.m. to 3:30 p.m. no see.
■ Foreign financial institutions also participate in the foreign exchange market between domestic banks…Limited to banks and securities companies
The government has decided to promote a plan for foreign financial institutions (RFIs) located abroad to participate in the domestic inter-bank foreign exchange market. Previously, only domestic financial institutions could participate.
Participation targets are global banks and securities companies of the same type as domestic foreign exchange agencies, and foreign exchange specialized investment companies that do not fall under this category are not eligible to participate.
It plans to open not only the spot exchange market, where transactions between the won and the dollar take place, but also the foreign exchange swap market to these foreign financial institutions. FX swap is a short-term foreign currency fund transaction with a maturity of less than one year in which a required currency is borrowed using surplus currency as collateral, and the principal is exchanged at the exchange rate at the time of contract upon maturity. It is a trading method mainly used by foreigners who invest in domestic securities to avoid the risk of exchange rate fluctuations.
Whether or not to open other foreign exchange derivatives, such as currency swaps (CRS) and currency options, will be determined at a later date in consideration of market conditions and trading demand.
As a requirement for authorization, it is necessary to secure a sufficient level of transaction limit to conduct transactions with existing participating institutions, and to open an account for settlement in Korean won at a domestic financial institution. We check whether corporate information, such as international standard IDs granted to corporations, and regulations of foreign financial institutions and national supervisory authorities are at the same level as domestic ones.
In addition, you must obtain a commitment to fulfill your obligations, such as complying with legal obligations and cooperating in the submission of materials such as supervision.
In addition, payment in Korean Won must go through a domestic foreign exchange brokerage company approved by the authorities.
The government explained that even if the foreign exchange market is opened, the authorities’ trading monitoring and market management functions will remain at the same level as they are now.
■ Introduced ‘foreign exchange electronic brokerage service for customers’… Administrative support such as permitting direct transactions with domestic financial institutions
To provide foreign financial institutions with the same e-transaction environment as domestic financial institutions, the government plans to introduce an ‘aggregator for foreign exchange exchange to customers’, which is already common in the global market. Institutions participating in the interbank market that have pre-registered with the authorities as foreign exchange electronic brokerage services will be able to provide customer service through the registered institutions.
Within the allowable range, the transaction can be concluded by checking the price through a messenger between the parties, and the bank can select a bank by presenting a quote according to the customer’s request for a quote. It is also possible that the bank presents a quote to the customer, and after the customer confirms the quote, selects the bank and executes the transaction.
However, it is not possible to use an automatic streaming method that automatically concludes a transaction at the optimal price without specifying the counterparty in advance.
In addition, measures were put in place to maintain the competitiveness of domestic financial institutions. In order to increase transactions by foreign financial institutions through domestic institutions, direct transactions between the head office and branches of the same group without going through a domestically authorized foreign exchange brokerage are permitted, and the obligation to report borrowings in Korean won is exempted.
In addition, considering the difficulty of foreign financial institutions complying with domestic laws, domestic financial institutions within the same group are allowed to act as agents for reporting and reporting of foreign financial institutions. Foreign financial institutions without a domestic branch can entrust their business to a leading bank, and will be exempted from reporting obligations when borrowing won from a leading bank.
The government decided to review supplementary measures for the foreign exchange soundness management system, such as the forward exchange position management system, to prevent the participation of foreign financial institutions from acting as a factor in market instability.
In addition, in case of emergency, we decided to come up with effective supervisory measures, such as specifying direct control measures for capital transactions by foreign financial institutions and establishing a cooperative system with local supervisory authorities.
■ “Foreign stock investment individuals can exchange freely”…implemented in the second half of next year
The government expects that through these measures, foreign investors will be more convenient in trading in Korean won, which will stimulate won-denominated asset investment and expand the overseas business of domestic financial institutions.
In addition, by inducing platform and price competition between domestic and foreign financial institutions, the service quality and safety of foreign exchange transactions are improved, and not only institutions but also individuals investing in overseas assets can freely exchange money during overseas business hours.
The government plans to implement such measures to improve the structure of the foreign exchange market with the goal of implementing them in July next year at the earliest after revising laws and preparing banknotes.
Participation of foreign financial institutions in the domestic foreign exchange market and institutionalization of foreign exchange electronic brokerage business are amendments to the Foreign Exchange Transactions Act, and extension of opening hours is a self-regulation of the market. The government plans to submit an amendment to the Foreign Exchange Transactions Act to the National Assembly in the third quarter of this year after a legislative notice.
[사진 출처 : 연합뉴스]
