What is the “FX market reform”?

Korea’s foreign exchange (FX) market has been maintaining its closed and restrictive structure for several decades.

The Korean Won (KRW) should be traded only in the onshore market as it cannot be traded in the offshore financial markets such as New York, London, and Hong Kong, but participation in the onshore market is restricted solely to onshore financial institutions and the trading hours extend only from 9:00 to 15:30 KST.

The “FX market reform” is an attempt to transform Korea’s foreign exchange market into a more open and competitive structure and here is an overview of the reform measures:

• 1(Opening up the onshore FX market to foreign financial institutions (FIs)) Foreign FIs are allowed to participate in the onshore FX market, if they obtain registration with certain requirements from the Korean authorities. These institutions are referred to as Registered Foreign Institutions (RFIs).
• 2(Extending onshore FX trading hours) Trading hours of the onshore interbank FX market, currently closed at 15:30 (KST), are extended to 2:00 of the following day (KST), which covers London trading hours, and are planned to be extended to 24 hours.
• 3(Enhancing market infrastructure) FX trading infrastructure will be improved to be in line with global standards as part of an effort to increase convenience of customers’ FX transaction.
• 4(Complementary measures) The Korean authorities will provide support to onshore financial institutions so that they can maintain their leadership and competitiveness in KRW trading and supplement macro-prudential measures in preparation for emergency.

How is the “FX market reform” progressing?

• 1(Current Status) Since the FX market improvement measures were released in February 2023, reform measures are being implemented as planned by completing the revision of the relevant laws and initiating RFI registration process in October 2023.
  The pilot program was launched in January 2024 which enables RFIs to conduct actual transactions and identify potential issues in advance.
• 2(Future Plans) The pilot program will run for 6 months until June 2024 to be fully prepared for the formal execution in July 2024.

What will be the outcome of the “FX market reform”?

• 1(Promoting advancement of financial sector) It is expected to accelerate development of Korea’s capital markets and financial sector by raising its FX market accessibility to be in line with global standards.
  The FX market improvement measures will boost investments in KRW-denominated assets as the difficulties faced by global investors who are trading KRW are greatly resolved and lead to globalization of the domestic financial institutions by expanding their overseas business.
• 2(Enhancing convenience of FX transactions) It is expected to improve the structure of FX services and costs with a more competitive market environment. Also, the improved FX market will enable Korean companies and institutions operating overseas as well as individuals who invest in foreign assets to freely exchange currency during overseas trading hours.
• 3(Alleviating market volatility) Increased trading volumes and market participants with various trading motives following the FX market improvement will contribute to Korea’s FX market stability.
• 4(Strengthening external soundness) It is expected to reduce foreign currency reliance and foreign exchange risks for trade settlements and foreign financing in the mid- to long-term as the global accessibility of the Korean Won is enhanced.