[Korea’s Bid for MSCI Developed Status]①"FX Market Liberalization Is Key"

Interview with Peter Stein, CEO of ASIFMA

"To be recognized as a developed market by MSCI, a country's onshore FX market needs a high degree of liberalization, minimal restrictions on two-way capital flows, efficient operations, equal investor treatment, and developed onshore/offshore FX."

Peter Stein, Chief Executive Officer (CEO) of the Asia Securities Industry & Financial Markets Association (ASIFMA), said in a written interview with The Asia Business Daily on January 2, "I cannot say which specific policy or market reforms would make Korea's inclusion in the MSCI Developed Market Index more likely," but added, "There are a number of reforms that are important for attracting and retaining more foreign investment into Korea."

ASIFMA, whose members include 160 global investors and financial institutions such as Goldman Sachs and JPMorgan, is a leading organization that has promoted greater foreign investor access and market structure improvements in Asian capital markets through policy recommendations and calls for regulatory enhancements.

Peter Stein, Chief Executive Officer (CEO) of the Asia Securities Industry & Financial Markets Association (ASIFMA). ASIFMA

Peter Stein, Chief Executive Officer (CEO) of the Asia Securities Industry & Financial Markets Association (ASIFMA). ASIFMA

Stein first noted that South Korea was one of the world's best-performing stock markets throughout 2025. He stated, "Korea is moving closer to the government's KOSPI 5000 target," and assessed, "Korea's GDP and per capita income are in line with other developed markets, as are the size and liquidity of the equity market." However, Stein avoided directly answering questions about the timing of South Korea's inclusion in the MSCI Developed Market Index-a pledge of the Lee Jaemyung administration-or the possibility of being designated as a 'watch list' country in 2026. He said, "We applaud the reforms that have already been introduced to the foreign exchange market (including the Registered Foreign Exchange Institution (RFI) system)," but also noted, "MSCI will likely need to monitor the actual market adoption of these measures."

Stein especially emphasized that, to be recognized as a developed market by MSCI, the following are essential: a high degree of liberalization in the onshore foreign exchange market; minimizing restrictions on two-way capital flows; efficient market operations; equal treatment of investors; and advanced onshore and offshore foreign exchange markets. In the case of South Korea, he pointed out that these aspects still do not fully meet developed market standards. This was also cited as a reason for South Korea's failure to be placed on the watch list last year, despite expectations of a KOSPI rally. To be included in the MSCI Developed Market Index, a country must first be designated as a watch list country for at least one year, then go through a three-step process before formal inclusion.

Stein said, "The lifting of the short-selling ban in March last year was a significant step, though the industry continues to experience teething issues with the new Naked Short-Selling Detection System (NSDS) which need to be addressed for securities borrowing and lending to be fully normalized." Accordingly, he requested, "We would encourage the Korean authorities to consider simplifying the existing operationally onerous reforms."

Specifically, regarding the recent decision by financial authorities to remove restrictions on who can open omnibus accounts for foreigners, he pointed out, "While omnibus accounts are available, settlements continue to be processed on a per-investor ID basis, which limits their utilization. Adoption of omnibus settlement would encourage further adoption." He also urged continued improvements in English-language disclosures, noting that "continued progress in English-language disclosures is important to ensure that foreign investors have easy access to the information they need to evaluate investment opportunities."

Additionally, as one of the further measures needed to normalize securities lending transactions, he cited "reviewing the penalty regime for violations of short-selling regulations," explaining that "this would include reviewing the penalty regime for violations of short-selling regulations to mitigate the risk around operational errors and align Korea with other international financial centers."

Stein repeatedly stressed that policy stability and regulatory predictability are fundamental to resolving the chronic "Korea discount" that plagues the Korean stock market. He pointed out, "Pivots in Korea's short-selling policy in recent years, coupled with heavy fines and criminal prosecution, undermined regulatory certainty." Nevertheless, he added, "The outperformance of Korea's market this year demonstrates the tremendous potential returns offered by investing in an economy with Korea's sophisticated technological and manufacturing capabilities. Ensuring that policies are well framed, implemented predictably and involve careful consultation with industry will promote a sustained market rerating and the elimination of the 'Korean Discount.'"