South Korea is planning to make two significant changes in its forex markets: one is to allow the participation of offshore firms, and the other is to run the FX markers for 17 hours a day.

Offshore Firms Can Participate in South Korean FX Markets

In a seminar in Seoul on Tuesday, the Ministry of Economy and Finance and the Bank of Korea confirmed that the new measures would align the South Korean FX markets to global standards, thus elevating the country's status.

Currently, only 54 certified local financial institutions, including banks and securities firms, can participate in the interbank forex Forex Foreign exchange or forex is the act of converting one nation’s currency into another nation’s currency (that possesses a different currency); for example, the converting of British Pounds into US Dollars, and vice versa. The exchange of currencies can be done over a physical counter, such as at a Bureau de Change, or over the internet via broker platforms, where currency speculation takes place, known as forex trading.The foreign exchange market, by its very nature, is the world’s largest tradi Foreign exchange or forex is the act of converting one nation’s currency into another nation’s currency (that possesses a different currency); for example, the converting of British Pounds into US Dollars, and vice versa. The exchange of currencies can be done over a physical counter, such as at a Bureau de Change, or over the internet via broker platforms, where currency speculation takes place, known as forex trading.The foreign exchange market, by its very nature, is the world’s largest tradi Read this Term market. The proposed changes would allow registered foreign institutions (RFIs) to participate in Korean spot exchanges and forex swap exchanges. However, global principal trading firms and hedge funds will be excluded from participation.

Further, firms with credit lines sufficient for holding transactions with other players will only be allowed to participate. The authorities will enable RFIs to participate in the forex derivatives and currency options markets.

According to the ministry, opening the Korean FX market to overseas firms "will lead to higher trading volume and invite more market participants with different motivations, contributing to market stability."

The daily volume of Korea's won-dollar spot exchange jumped from $1.83 billion in 1997 to $7.81 billion in 2008. However, the growth has slowed down since then with only $9.04 billion in 2022, as per the Finance Ministry's figures.

Moreover, the non-deliverable forwards (NDFs) market transactions surpassed the spot market.

"With old roads, we cannot handle the rapidly increased demand. The narrow roads could rather threaten stability," said Kim Seong-wook, the Finance Ministry's Deputy Director General for International Finance Bureau, referring to the local FX market. "We will expand the decades-old, unpaved two-lane road to a newly paved four-lane road that connects Korea with other nations."

Check out the FMLS22 session on "Liquidity Between Retail & Institutional Trading."

Extending Market Hours

In addition to allowing overseas firms, the Korean authorities have proposed the extension of foreign exchange trading hours from the existing 9 am to 3:30 pm to a new 9 am to 2 am schedule. It will allow activities in the Korean FX market to continue even during London business hours.

The authorities propose implementing the new trading hours as early as the second half of 2024 following a six-month pilot run. Depending on market participation, the ultimate goal is to keep the Korean FX market open around the clock.

The goal behind extended trading hours is to minimize the gap between the expected currency exchange rate and the actual price for foreign investors willing to invest in the South Korean markets.

Both of the proposed changes to the Korean forex market have been significant since the establishment of the country's government in 1948. Earlier, the authorities attempted to open up the Korean markets globally but failed due to the Asian financial crisis in 1997.

"Taking the external stability into account, instead of allowing trades of the Korean won offshore outside local authorities' discipline, we plan to transform the domestic foreign exchange market's structure to become more open and competitive," an official said.