Foreign Exchange Market Daily Trading Volume Increases by 10.7%
Year-End Deputy Minister-Level External Cooperation Meeting to Announce Additional Inspections
The government will ease the registration requirements for foreign exchange business handling institutions (RFI) and the reporting obligations to the foreign exchange network to increase the participation of foreign financial institutions in the domestic foreign exchange market. It will also expand the role of domestic financial institutions' overseas branches as RFIs and increase incentives for late-night trading. A task force (TF) will be operated monthly to enhance the convenience of foreign investors' foreign exchange transactions.
Promotion of Foreign Exchange Market Structural Improvement... Increase in Trading Volume
On the 7th, Kim Beom-seok, the 1st Vice Minister of the Ministry of Economy and Finance, chaired the 'Foreign Exchange Soundness Council (Oegunhyeop)' at the International Finance Center. The Oegunhyeop is a vice minister-level consultative body for information sharing, policy consultation, and coordination among related agencies. The meeting was held to review the progress of the 'foreign exchange market structural improvement,' which focuses on opening the foreign exchange market to foreign financial institutions and extending the market hours until 2 a.m. Attendees included officials from the Financial Services Commission, the Bank of Korea, and the Financial Supervisory Service.
Kim Beom-seok, 1st Vice Minister of Strategy and Finance (center) / Photo by Ministry of Strategy and Finance
The participants evaluated that after the official implementation of the foreign exchange market structural improvement on the 1st of last month, trading, confirmation, and settlement in the foreign exchange market until 2 a.m. proceeded smoothly, demonstrating good system stability, liquidity, and volatility aspects. They also praised the increase in overall foreign exchange market trading volume and the stable bid-ask spreads. In fact, the average daily trading volume last month increased by 10.7% compared to the same month last year and by 37.4% compared to the five-year average.
However, the need to increase RFI participation and trading was raised as a task. An RFI refers to a foreign financial institution located overseas that meets certain requirements stipulated by the Foreign Exchange Act and is registered with the foreign exchange authorities to trade in the domestic foreign exchange market. Vice Minister Kim urged the foreign exchange authorities to resolve related issues so that foreign financial institutions registered as RFIs or interested in registration can trade conveniently during business hours. He also emphasized the importance of securing liquidity during late-night hours after 11 p.m.
Abolition of Unnecessary Information Reporting Obligations
The Oegunhyeop participants plan to promote institutional improvements tailored to the characteristics of participants such as foreign financial institutions, domestic financial institutions (domestic banks and securities firms), foreign bank branches, and local subsidiaries of foreign financial institutions over the next six months to expand the scope of the Korean market and increase late-night trading.
To encourage more foreign financial institutions to participate in our foreign exchange market, the RFI registration requirements and the Bank of Korea's foreign exchange network reporting obligations will be eased. Additionally, when registering as an RFI, it will be allowed to use the credit ratings of financially related entities such as parent companies within the same group. Reporting obligations for information that is burdensome or involves redundant verification during the RFI reporting process will be completely abolished.
Furthermore, to facilitate smooth nighttime desk operations of domestic financial institutions, the role of overseas branches of domestic financial institutions as RFIs and incentives for late-night trading will be expanded. From now on, overseas RFIs of domestic financial institutions will be able to handle transaction volumes of domestic residents. When increasing trading during nighttime hours, differential weighting will be applied by time zone when calculating trading volumes for selecting lead banks in the KRW-USD market.
On the 1st of last month, employees are working on foreign exchange market tasks in the dealing room at the Seoul Hana Bank headquarters. Photo by Younghan Heo younghan@
To reduce the burden of foreign investor-related trading, confirmation, and settlement mainly conducted by foreign bank branches or foreign bank domestic corporations, a comprehensive review and improvement of the entire foreign exchange transaction process for foreign investors will be carried out. A 'Foreign Exchange Transaction and Settlement Procedure Review Working TF,' involving related institutions such as foreign domestic custodian banks, agents, the Korea Exchange, and the Korea Securities Depository, will be operated monthly. Major issues requiring improvement will be discussed monthly at the director-general level Oegunhyeop meetings by foreign exchange and financial authorities.
The Ministry of Economy and Finance stated, "Foreign exchange and financial authorities will explain in detail the tasks discussed today through the Seoul Foreign Exchange Market Operation Council and financial institution meetings, gather market opinions, and finalize them." They added, "The progress of the implementation of the tasks discussed today and the six-month performance of the foreign exchange market structural improvement will be reviewed at the year-end vice minister-level Oegunhyeop meeting."
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