In preparation for the inclusion of Korean government bonds in the World Government Bond Index (WGBI) this April, the government will improve the securities settlement system to allow same-day foreign exchange and settlement by foreign investors starting March 30.
Employees are working in the dealing room of Hana Bank in Euljiro, Seoul, while a large electronic board displays stock prices, exchange rates, and other indices. Photo by Younghan Heo younghan@
On the 27th, Heo Jang, Second Vice Minister of Economy and Finance, held the "Foreign Exchange Soundness Council and MSCI Developed Market Index Inclusion Task Force" at the Bankers' Club in Seoul.
The attendees first reviewed the implementation status of the comprehensive roadmap for the foreign exchange and capital markets, which was announced in January to facilitate Korea's inclusion in the Morgan Stanley Capital International (MSCI) Developed Markets Index.
MSCI annually classifies the world's major stock markets into four broad groups: developed markets, emerging markets, frontier markets, and standalone markets. The MSCI Developed Markets Index is a global stock index comprising representative listed stocks from developed markets. Currently, Korea remains classified as an emerging market.
The government and relevant authorities are working to advance the Korean capital market, aiming for Korea to be placed on the watch list for developed market status in the MSCI's annual market classification announcement in June this year, with the goal of being included in the developed market index in June next year.
Of the 39 tasks across eight areas in the MSCI roadmap, 13 tasks (33%) were already carried out in January and February. Relevant agencies plan to implement an additional nine tasks in March, bringing the total to 22 tasks-over 50%-to be completed in the first quarter.
Vice Minister Heo stated, "To ensure seamless execution of the roadmap, we will closely monitor the progress of each task and actively support the smooth introduction and establishment of the new system."
The meeting also discussed the status and follow-up measures for WGBI inclusion. Ahead of the actual inclusion on April 1, and considering test demand from global investors, the Bank of Korea and the Korea Securities Depository will extend the closing time for delivery versus payment (DvP) in securities settlement from the current 17:20 to 19:50, so that won obtained through Continuous Linked Settlement (CLS) can be used for securities settlement on the same day.
Next, to facilitate smooth funding and settlement during the extended hours, the deadline for settlement instructions in the integrated government bond account will be moved earlier.
With the extension of the bond settlement system closing time, the deadline for bond purchase and sale settlement instructions received by the Korea Securities Depository will also be extended. This has previously delayed the confirmation of settlement funds by ICSD (International Central Securities Depositories) correspondent banks, resulting in difficulties securing liquidity during the extended hours. Accordingly, the deadline for settlement instructions for the integrated government bond account will be advanced to 17:30, providing sufficient time for ICSD correspondent banks to secure funding.
Vice Minister Heo stated, "These supplementary measures will further enhance the stability of the domestic securities settlement system."
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