(Bloomberg) — South Korea will begin accepting registrations from foreign investors to trade local won, taking its first step in opening its currency market to global traders.
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The Finance Ministry said in a statement that the government will receive applications starting Wednesday from foreign financial institutions that want to trade the local won using the local interbank foreign exchange market. In an initial survey, about 30 foreign companies expressed interest in participating, according to the statement.
The move comes as part of efforts by South Korean authorities to give foreign investors more access to its markets, which have been severely restricted after outflows of funds in previous financial crises caused turmoil in the local economy. The move will bring Korea closer to meeting market opening demands through global indices such as the FTSE Russell Global Government Bond Index, in which its inclusion is likely to pave the way for inflows amounting to tens of billions of dollars.
“This move, as part of the government’s initiative to improve market structure, is expected to increase trading volume and enhance liquidity in the market,” said Moon Jong-hyo, an economist at KB Kookmin Bank. “But on the other hand, there is some concern because we have no idea at this point what kind of money these foreign institutions will have.”
As part of those moves on the currency side, the government said it would extend internal trading hours to 2am starting in July 2024 before eventually allowing 24-hour trading.
For now, the trading window for the local won will remain from 9am to 3:30pm as the government continues to monitor how well Korean financial companies cope with the changes. External currency trading will also remain prohibited.
Once registered, foreign investors will be able to trade spot won and forex swaps directly using the local interbank system from January, although it will be a pilot program for the first six months, during which authorities will closely monitor the markets and take steps if necessary. .
The won was trading within a narrow range around 1,351 to the dollar on Wednesday, following the announcement.
Global funds must sign lines of credit contracts with at least 10 Korean financial institutions including at least four “leading foreign exchange banks” to be eligible for registration, according to a separate set of guidelines announced on Wednesday.
This compares to at least 15 line of credit contracts referred to in an earlier administrative notice. The government said it may ease the terms of credit line contracts for external funds if necessary.
-With assistance from Shinhye Kang and Daedo Kim.
(Adds line of credit requirement at end of story.)
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