The Central Association Will Be Included in Future Open Market Operation Institutions

BOK Monetary Policy Committee Approves Reform of Open Market Operation System

From the 1st of next month, non-bank deposit-taking institutions and central associations will be included as participants in open market operations.

On the 25th, the Monetary Policy Committee of the Bank of Korea resolved to include central associations and individual mutual savings banks within the scope of eligible institutions for open market operations, allowing liquidity supply through open market operations to non-bank deposit-taking institutions. Currently, only banks and some securities firms can participate when the Bank of Korea sells or purchases repurchase agreements (RP).

The actual selection of eligible institutions reflecting this resolution is scheduled to take place in July this year during the ‘2024 Regular Open Market Operations Eligible Institution Selection’.

Source=Bank of Korea

Park Jong-woo, Director of the Financial Market Department at the Bank of Korea, explained, "Considering the increasing share of non-bank financial institutions in the financial market and their expanding influence on the transmission channels of monetary policy, this measure aims to enhance the effectiveness of monetary policy and strengthen the financial market stabilization function."

Regarding the selection criteria, new standards have been established, including financial soundness qualifications and evaluation items and scoring for selecting RP trading eligible institutions. In particular, to encourage the expansion of eligible institutions’ capacity to participate in open market operations, the size of holdings of eligible securities such as government bonds will be included as an important evaluation item.

Additionally, the selection criteria will be effectively revised and a bidding system established to allow asset management companies, which are already included in the selection scope, to be actually selected as eligible institutions. Until now, asset management companies have never been selected as eligible institutions.

To this end, when selecting RP trading eligible institutions, the Bank of Korea will separate asset management companies into a distinct evaluation group and introduce a new selection method considering policy effectiveness, while also changing the evaluation items and scoring criteria.

Furthermore, it will be possible to limit the bid amount per bidder during competitive bidding for securities trading, and the transaction performance qualification requirements for monetary stabilization bonds will be relaxed when selecting eligible institutions.

By applying the current bidder restriction provisions for other open market operation instruments, consistency among provisions related to bid award decisions will be enhanced, and the minimum transaction performance qualification for monetary stabilization bonds will be eased from the previous requirement of acquiring 2% of the issuance volume to 1%, considering fairness between existing and new eligible institutions.

Moreover, for RP trading, the planned trading amount will be announced in advance, and the maximum bid limit per individual financial institution will be restricted to a certain percentage of the planned trading amount (up to 100%), improving bidding-related matters.

Regarding the allocation method of securities for RP sales, it will be changed to a method that matches the winning institutions with eligible securities so that the number of securities sold by the Bank of Korea is minimized.