Korea Financial Investment Association Designated as CD Yield Calculation Agency

The Korea Financial Investment Association (KOFIA) will take charge of calculating the yield on Certificates of Deposit (CDs). The calculation method will also change from 'voluntary quote submission' to a technique based on actual transactions and expert judgment. Financial authorities have decided to focus on guidance rather than sanctions to ensure the smooth establishment of this indicator in the market.

On the 21st, the Financial Services Commission (FSC) designated KOFIA as the important indicator calculation institution and finalized the approval of the regulations for calculating CD yields.

Previously, in March 2021, the FSC designated CD yield as an important indicator under the Financial Transaction Indicators Act. With this recent decision, the indicator will take effect from October 2 after an approximately three-month grace period.

Accordingly, KOFIA will establish an Important Indicator Management Committee to secure the reliability and validity of the CD yield. Securities firms must prepare internal control measures to prevent conflicts of interest related to yield calculation.

Furthermore, once effective, financial companies using this indicator will be obligated to provide related explanatory documents to general investors and explain the contents when concluding new contracts or renewing existing ones.

The previous calculation method, which relied on voluntary quote submissions by securities firms, will be replaced by a stepwise calculation method (Waterfall) based on actual transactions and expert judgment.

First, the top 10 securities firms with the highest CD transaction performance in the previous year, selected by KOFIA, will serve as the basic data submission institutions. Using qualified transactions from these firms, the basic yield will be derived in the first step. Qualified transactions refer to contracts traded between securities firms in units of 10 billion KRW or more for CDs issued by commercial banks with maturities of 80 to 100 days.

Subsequently, adjacent issuance and liquid transactions will be referenced, and finally, expert judgment criteria such as benchmark interest rates and bank interest rates for similar bonds will be applied to calculate the basic yield.

However, the calculation and disclosure frequency, previously conducted twice a month (at 12:00 PM and 4:30 PM), will be reduced to once a month (at 4:30 PM). This measure considers the need to secure as many actual transactions as possible. The calculation and disclosure of CD yields for special banks such as the Korea Development Bank and Industrial Bank of Korea, which have minimal market utilization, will be discontinued.

An FSC official stated, "Considering that the system is newly restructured and implemented, we will focus on guidance and consulting supervision rather than legal sanctions for securities firms submitting basic data for the time being," adding, "We plan to encourage the smooth establishment of CD yields in the market."