[MSCI Developed Index Challenge]① "Key to Korea's MSCI Developed Index Entry Is FX Market Liberalization"

Interview with ASIFMA CEO Peter Stein
"Improvements Needed in Foreign Investor Accounts and English-Language Disclosures"
"Regulatory Predictability on Short Selling and Other Issues Is Crucial"

"For South Korea to be included in the MSCI Developed Market Index, a high degree of liberalization in the onshore foreign exchange market must be achieved, and there should be no discrimination among investors."

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, "It is difficult to definitively point to specific policies or market reforms that would increase the likelihood of South Korea's inclusion in the index," but added, "South Korea has several important reform tasks to attract and retain foreign investment."

ASIFMA, whose members include 160 global investors and financial institutions such as Goldman Sachs and JP Morgan, is a leading organization that has promoted improved access for foreign investors and enhanced market structure in Asia’s capital markets by making policy recommendations and advocating for regulatory improvements.

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

First, CEO Stein highlighted that South Korea was one of the best-performing stock markets in the world throughout 2025. He noted, "The government's 'KOSPI 5000' target is getting closer," and assessed, "South Korea's gross domestic product (GDP) and per capita income levels are similar to those of other developed countries, and the size and liquidity of its stock market also meet developed market standards."

However, Stein refrained from directly answering questions about the timing of South Korea's inclusion in the MSCI Developed Market Index, a campaign pledge of the Lee Jaemyung administration, or the possibility of being designated as a 'watch list' country in 2026. He said, "We highly appreciate the reform measures already introduced in the foreign exchange market, including the Registered Foreign Exchange Institution (RFI) system," but also pointed out, "MSCI will need to monitor how effectively these systems are being utilized in the actual market."

In particular, CEO Stein emphasized that, to be recognized as a developed market by MSCI, it is essential to achieve: a high level of liberalization in the onshore foreign exchange market; minimal 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 indicated that these areas still do not fully meet developed market standards. This was also identified as a shortcoming last year when South Korea failed to be added to the watch list despite expectations for 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 undergo a formal index inclusion process, which involves three steps in total before actual inclusion.

CEO Stein stated, "The lifting of the short-selling ban in March last year was an important step forward, but the industry is experiencing teething issues with the newly introduced Naked Short Sale Detection System (NSDS)," adding, "To fully normalize securities borrowing and lending (SBL), these issues need to be resolved." Accordingly, he urged Korean authorities to consider simplifying those aspects of the current system that impose significant operational burdens.

Specifically, regarding the recent decision by financial authorities to remove the restrictions on who can open foreign investor omnibus accounts, he pointed out, "Settlement is still processed by investor ID, which limits their usability." He also called for continued improvements in English-language disclosures. Additionally, as a further measure to normalize securities lending transactions, he suggested a "review of the penalty system for violations of short-selling regulations." He explained, "This could include mitigating risks arising from operational errors and aligning Korea’s system more closely with those of other international financial centers."

CEO Stein repeatedly emphasized that policy stability and regulatory predictability are fundamental to resolving the chronic 'Korea Discount' attached to the Korean stock market. He pointed out, "In Korea’s case, frequent changes in short-selling policy over recent years, combined with excessive fines and criminal penalties, have undermined the predictability of regulation." Nevertheless, he stated, "This year's outstanding performance of the Korean stock market demonstrates the significant potential returns available when investing in an economy with advanced technology and manufacturing competitiveness. If policies are clearly designed, consistently enforced, and sufficiently discussed with the industry, this will lead to continued market revaluation and the resolution of the Korea Discount."