S. Korea to improve FX market system to win MSCI developed market status

All News 08:00 January 25, 2022

SEOUL, Jan. 25 (Yonhap) -- South Korea said Tuesday it plans to improve the foreign exchange market system to better ensure foreign investors' market access as it seeks to win developed market status from Morgan Stanley Capital International (MSCI).

MSCI has classified the South Korean stock market for years as an emerging market, saying the absence of an offshore currency market for the Korean won is one of the main reasons for its decision.

In November last year, the government said it will push again to win the MSCI developed market status, with the aim of getting its stock market first placed on the watch list in the agency's upcoming June review.

"We will push for improving the FX market system to markedly reduce foreign investors' inconvenience," the finance ministry said in a statement.

Electronic signboards at a Hana Bank dealing room in Seoul show the benchmark Korea Composite Stock Price Index (KOSPI) closed at 2,792 points on Jan. 24, 2022, down 42.29 points, or 1.49 percent, from the previous session's close. The Korean currency ended at 1,196.10 won per the U.S. dollar, down 2.1 won from the previous day. (Yonhap)

The government conducted a survey on global investment banks and foreign financial institutions on the main inconveniences of using the Korean FX market late last year.

Among their major complaints were the impossibility of directly participating in South Korea's FX market and the difficulty of currency conversion after the market closed.

Currently, only Korean financial institutions with state authorization are allowed to take part in the interbank FX market. Korea's FX market opens from 9 a.m. to 3:30 p.m.

The finance ministry said it is exploring several potential options to better ensure foreign investors' access to the FX market, including the extension of the market operating hours and easing regulations on offshore transactions of the Korean won.

The government plans to come up with detailed measures after consulting with local financial institutions in a bid to minimize their impact on the market.

In response to the MSCI's demand for the offshore currency market, the Korean government has said the Korean currency's convertibility into other currencies has been sharply enhanced compared with the past, as the won has become one of the most highly traded currencies.

Trading in the offshore non-deliverable forward market remains high, which enables foreign investors to effectively engage in foreign exchange trading for 24 hours, it said.

For the upgrade to the MSCI developed market status, a country is required to first be placed on the watch list for at least one year. In 2008, Korea was placed on such a list but failed to be granted the status later. It has been excluded from the watch list since 2014.

sooyeon@yna.co.kr
(END)