South Korea has announced that it will begin accepting applications from foreign financial institutions to participate in the onshore dollar-won interbank market. The country’s finance ministry stated that it plans to open up the foreign exchange market and boost trading by allowing qualifying foreign companies to participate in the onshore market from 2024.
Currently, the Korean won can only be directly traded with the dollar through local banks for a limited period of time each day. Trading hours are restricted to six-and-a-half hours between 9 a.m. and 3:30 p.m. To encourage more foreign participation in the currency market, the plan is to extend onshore trading hours until 2 a.m., aligning with the closing of London business hours. This extension is expected to take place in the second half of next year as part of South Korea’s regulatory overhaul.
In order to qualify for the permit, the financial institutions will need to meet capital and liquidity requirements of Basel III. They must also be licensed banks or brokerages in the country where they are headquartered.
Once approved, these foreign financial institutions will be able to participate in the dollar-won spot market and FX swap trading. This move is aimed at increasing liquidity and expanding the range of foreign exchange services available in South Korea. It will provide greater opportunities for foreign investors to trade the Korean won and further integrate the country into the global financial market.
The opening up of the onshore dollar-won interbank market reflects South Korea’s continued efforts to enhance its financial market infrastructure and attract more foreign investment. By granting permits to foreign financial institutions, the country hopes to encourage greater competition, improve market efficiency, and ultimately strengthen its position as a global financial hub.
In conclusion, South Korea’s decision to accept applications from foreign financial institutions for participation in the onshore dollar-won interbank market marks a significant step towards liberalizing its currency market and attracting more foreign investors. With plans to extend trading hours and open the market to qualified foreign companies, the country is taking strides to enhance liquidity and promote a more open and competitive financial environment.