Preparation for WGBI Inclusion... Introduction of Integrated Government Bond Trading Account for Foreign Investors

The financial authorities have announced follow-up measures to enhance market accessibility for foreign investors ahead of the inclusion in the World Government Bond Index (WGBI). They are introducing an integrated government bond trading account that allows foreign financial investors to place consolidated orders for government bond trades, and are also promoting a 'global sales model' where foreign banks collaborate with domestic banks to provide government bond investment funds to foreign investors.

On the 24th, the Financial Services Commission announced that it will implement amendments to the Capital Markets Act Enforcement Decree, supervisory regulations, and issue authoritative interpretations to promote WGBI investment.

First, the financial authorities issued an authoritative interpretation confirming that integrated government bond accounts and consolidated trading orders are possible. Accordingly, from this day forward, foreign investors will be able to process government bond trade settlements through the integrated government bond account established in June last year without opening individual accounts.

Going forward, trading orders will be placed through the integrated government bond account, and settlements will use the already introduced integrated government bond account, allowing the entire government bond trading process to be handled in an integrated manner without distinguishing between individual funds or investors. To institutionalize this, the financial authorities have also announced plans to amend the Financial Investment Business Regulations to establish the integrated government bond trading account.

Additionally, the global sales model will be activated, where global financial companies take charge of sales and marketing to foreign investors, and local financial companies with high market accessibility supply government bond liquidity. This model involves global banks’ overseas headquarters (foreign banks) purchasing government bonds from their Seoul branches (domestic banks) and then selling them to foreign investors.

To facilitate the smooth establishment of this model, the financial authorities have decided to improve areas with legal uncertainties. Through authoritative interpretation, it has been clarified that foreign banks can first sell government bonds they do not hold in response to foreign investor demand and then purchase them later from domestic banks.

Furthermore, an amendment to the Capital Markets Act Enforcement Decree will be publicly notified in early February to allow foreign banks to sell government bonds to foreign investors and then sell those bonds to domestic banks before settlement is completed. Additionally, an authoritative interpretation has been issued confirming that domestic banks, as government bond investment dealers, can, under limited circumstances, sell bonds they do not hold in advance to meet foreign investor demand and then repurchase them later in the government bond market.

The Financial Services Commission stated, "The authoritative interpretation has been completed, and we plan to promptly proceed with amendments to the Financial Investment Business Regulations and the Capital Markets Act Enforcement Decree," adding, "We expect that these follow-up measures will activate integrated trading of WGBI government bonds and the global sales model."