Starting from July 1, the trading hours of the Korean KRW/USD foreign exchange (FX) market will be extended until 2:00 a.m. the next day (currently 09:00~15:30). Along with it, the pilot program of the ‘Improvement Measures for FX Market Structure’ implemented earlier this year will be concluded, advancing to a full implementation phase. The extended trading hours of the Korean FX market will cover the trading hours of the financial markets in London, a major global financial hub, allowing the Korean won to be traded more conveniently and at real-time prices during the hours when major global financial institutions and investors conduct transactions.

When the KRW/USD market trading hours are extended, foreign investors wishing to trade Korean stocks and bonds will be able to continue exchanging US dollars for Korean won through onshore financial institutions or offshore financial institutions (RFIs^*) that they primarily trade with until 2 a.m., beyond the current closing time of 3:30 p.m. Korean time. Likewise, onshore investors will be able to freely exchange currencies at real-time market rates rather than temporary rates when investing in offshore capital markets^*, such as purchasing US stocks and bonds at night. Furthermore, export and import companies operating domestically or abroad will be able to exchange currencies in a timely manner at real-time rates that immediately reflect factors impacting the FX and financial markets, such as key economic indicators released at night (e.g., US GDP growth rate). This will also allow them to manage the risk of losses due to exchange rate fluctuations effectively.

^* Registered foreign institutions (RFIs) are foreign financial institutions that have met certain requirements and registered with the FX authorities in order to directly trade in the onshore FX market (as of June 12, 26 institutions are listed as RFIs).

^* (Example) Thus far, when exchanging currency to purchase US stocks after the FX market closes, the initial exchange was made at a temporary rate higher than the market rate, and settled at the actual market rate the next day when the FX market reopens. From July, it will be possible to exchange currency at real-time market rates until 2 a.m., with no separate settlement procedures required.

In line with the extension of trading hours starting July 1, onshore FX market participants including FX banks, securities firms, and FX brokers plan to operate night desks to facilitate FX transactions and related settlements during the extended hours (15:30 to 2:00 a.m. of the following day). Also, several financial companies intend to launch new branches or offices in locations like London and deploy dedicated personnel for FX trading.

For the institutional changes through the Improvement Measures for FX Market Structure to be successfully established, it is crucial to create conditions such as maintaining an adequate level of FX liquidity that allow market players to smoothly trade the necessary volumes at appropriate prices during the extended hours. However, it is noted that currencies with 24-hour trading, such as the Swiss Franc and Chinese Yuan, also experience a decrease in trading volume during late-night hours after the close of business (COB). The Ministry of Economy and Finance (MOEF) and the Bank of Korea (BOK) plan to actively support building an environment where onshore and offshore market participants can trade in the Korean FX market without any difficulties.

To this end, the FX authorities have been actively communicating with financial institutions home and abroad as well as foreign investors, to explore regulatory and practice improvement needs in Korea’s FX market, pursuing institutional improvements through consultations with related agencies. To be specific, measures being promoted include expanding temporary KRW overdrafts to facilitate third-party FX transactions^*, easing the reporting burden for RFIs and suspending penalties for reporting violations until the end of 2024, and designating onshore FX banks whose overseas branches registered as RFIs as trading institutions for cross-currency transactions with the BOK’s FX management unit. In addition to these initiatives, the following measures will support FX trading during the extended hours.

^* Allowing FX transactions for customers’ securities investments at third-party banks (RFIs) where customers do not have accounts. This fosters competition among institutions providing FX services, thereby reducing currency exchange costs.

First of all, the “KRW/USD Market Leading Bank System” will be reformed to incentivize onshore banks to actively provide bid and ask prices and perform market-making roles during extended hours. When selecting leading banks next year, a higher weight will be given to their trading performance during extended hours. In addition, the proportion of the leading banks’ KRW/USD market-making transactions will be increased among the Macro-prudential Stability Levies reduction items. To this end, MOEF and the BOK plan to amend related regulations such as the FX Transactions Regulations, Detailed Regulation on Handling FX Transactions, and Handling Procedures of FX transactions. Furthermore, with an aim to enable onshore banks to actively participate in market-making for spot exchange even during late-night hours, the electronic trading hours for offshore KRW/USD Non-deliverable Forward (NDF)^* transactions by banks operating night desks will be extended by one hour from July 1 (2 a.m. → 3 a.m.). This change is expected to help onshore banks manage exchange rate fluctuation risks more easily during nighttime hours^*, allowing them to trade more actively in Korean FX market and offer more competitive quotes.

^* Non-deliverable forward (NDF) is a type of forward contract in which only the difference between the contracted exchange rate and the spot rate at the maturity date (designated rate) is settled in USD instead of KRW. It is commonly used by foreign investors as a hedging and speculative investment tool.

^* Considering that onshore banks utilize NDFs to manage exchange rate fluctuation risks arising from excess buy or sell positions while trading with customers or other banks during the open hours of the onshore FX market.

Second, measures will also be considered to promote the trading of the Korean won by RFIs that are actively operating and trading in the global financial markets during the extended hours. Above all, actively trading RFIs will be selected as “Leading RFIs” to build a regular communication channel with the Korean FX authorities. Also, after the extension of trading hours, guidelines for reassessing the appropriateness of RFI registration will be developed based on the trading volume and frequency of each institution. The contract execution and trading readiness between RFIs and onshore financial institutions will also be continuously monitored, and active efforts will be made to resolve any difficulties that may arise.

Finally, the government has authorized Korea Money Brokerage Corp. to establish a branch in London and an office in Singapore, and plans to authorize Seoul Money Brokerage Services Ltd. to open an office in London; this will enable RFIs based overseas to trade quickly and smoothly through a stable trading infrastructure and to more easily access the onshore market.

As described above, the FX authorities will support securing adequate liquidity during the extended trading hours. At the same time, they will closely monitor market trends to ensure that the expansion of market participants and trading hours due to the FX reform measures does not lead to excessive volatility, while striving to restore market stability. If excessive exchange rate volatility occurs during nighttime hours, appropriate market stabilization measures will be implemented in a timely manner. Not only that, the authorities will regularly inspect the operation of night desks by onshore financial institutions, while promoting the overseas expansion of onshore financial institutions to seek financial advancement and enhance global competitiveness.

The authorities will maintain close communication with market players, including RFIs, to gather opinions regarding on-site difficulties and continue endeavors to further improve the system. In the medium to long term, they will assess the need for and the appropriate timing of further opening Korean FX market, including 24-hour trading, in consideration of market conditions after the second half of the year, domestic and international factors, and RFI participation.

Please refer to the attached files.