South Korea Aims to Shift NDF Trading to Spot Deliverables
Reforming Currency Trading
South Korea is determined to reform its currency trading to drive a significant portion of trading volumes from the non-deliverable forwards market to its spot currency market. This move, according to a senior government official, is expected to attract more foreign investors and secure a position in global indexes.
Market Reforms
Historic market reforms have been initiated this year, including steps such as longer trading hours and wider foreign participation. These reforms are aimed at courting foreign investors and boosting South Korea’s presence in global indexes.
Hedging Demand
Shin Joong-beom, director general of the finance ministry’s International Finance Bureau, expressed the need to address the hedging demand and the reliance on the non-deliverable forwards market for forex transactions. The government hopes to move a significant portion of the NDF to the spot deliverable market.
Extended Trading Hours
South Korea will extend trading hours from 9 a.m. to 2 a.m. starting in July, covering London business hours. This move is expected to allow a broader range of global investors to participate in the interbank FX market.
Foreign Participation
Foreign financial institutions have been allowed to participate directly in South Korea’s local interbank currency market. Around 20 foreign firms, including SSBT London, SSBT Hong Kong, HSBC Singapore, CA Paris, MUFG Tokyo, and SC London, have applied to participate in the local interbank market.
Impact on Global Funds
Providing the dollar/won spot exchange rate during the London fixing time is crucial for global fund investors following MSCI or WGBI, as the value of global funds is assessed daily. These reforms are expected to positively impact South Korea’s efforts to get its stocks and bonds accepted into benchmark developed market indexes, potentially drawing billions of dollars into the economy.
Integration with Euroclear
South Korea’s team is in talks with securities settlement house Euroclear to boost foreign investors’ access to the won currency. Euroclear had announced its plans to open an omnibus account for South Korean treasury bonds in August last year.
We’re in talks with them to address any inconveniences faced by foreign investors. If there are, we would positively review to address them.
