South Korea Extends FX Trading Hours to Help Offshore Participation

South Korea will significantly lengthen the opening hours of its local foreign exchange market from October 18 to allow offshore FX dealers to participate in the market. From the current 9am-3.30pm (local time) opening, the market will continue until a close at 2am Seoul time.

The changes were first unveiled in February of this year, and have now been implemented by the country’s Ministry of Finance and Economy. In a statement, the ministry says the new framework “institutionalises the participation of Registered Foreign Institutions (RFIs) in Korea’s foreign exchange market”.

Under the guidelines, RFIs will be allowed to buy and sell deliverable spot and forwards (including FX swaps and outright forwards) in the onshore interbank FX market. Interbank FX transactions must be conducted, however, through government-approved local broker(s) (including foreign brokers’ branches in Korea). RFIs will also be able to trade the deliverable FX products with their customers, and the scope of customer is limited to non-residents.

In addition, payments must be made through the foreign currency accounts for business use (which are opened with domestic and foreign financial institutions) or won accounts (which must be opened with domestic banks or foreign bank branches in Korea).

The guidelines also state that RFIs, as FX market participants, must comply with the legal obligation to confirm that their customers have made legitimate report on FX transactions and to report key transaction-related information to authorities. Taking into consideration the difficulties in complying with certain obligations due to being located overseas, however, the government says it is permissible to designate foreign financial institutions, such as FX banks, in the same group (foreign bank branches) or leading banks as agencies to entrust the fulfillment of obligations.

The government adds it will supervise business of these institutions to maintain their soundness and closely monitor the compliance of obligations through the Bank of Korea.

The new regulation stipulates the registration requirements for RFIs wishing to participate in the domestic FX market, as well as procedures for modification or discontinuance of the registration. The government says it will verify the eligibility of foreign financial institutions when they apply for registration, and periodically (every three years) review their appropriateness to ensure stable transactions with Korean FIs and that they do not act as risky factors in Korea’s FX market.