Won international settlement network begins pilot run; full launch set for January

BlackRock among participants; investors urge adequate preparation before T+1 shift

Ministry of Economy and Finance [Yonhap]
Ministry of Economy and Finance [Yonhap]

The government plans to ease restrictions on overseas borrowing by foreign securities firms' domestic branches in the fourth quarter, as part of broader efforts to improve the convenience of securities trading and settlement for foreign investors. Global investors welcomed the direction of the reforms but said the new systems should be consistently monitored to ensure they function smoothly in practice.

The Ministry of Economy and Finance said Wednesday that Vice Minister for International Economic Affairs Moon Ji-sung chaired the second meeting of the Global Core Investor Consultative Body via video conference on Tuesday, reviewing the progress of foreign exchange and capital market reforms and examining difficulties faced by investors.

Following the first meeting on Aug. 26, the session drew participation from major global asset managers including BlackRock, Amundi, Northern Trust and State Street. The Asia Securities Industry and Financial Markets Association, the Global Foreign Exchange Division, the Financial Services Commission, the Bank of Korea, the Financial Supervisory Service, Korea Exchange and the Korea Securities Depository also attended.

The government plans to allow domestic branches of foreign securities firms to borrow won and foreign currencies from overseas in the fourth quarter — something currently prohibited. For locally incorporated foreign securities firms, it will also raise the threshold for won-denominated borrowing that requires prior notification to the ministry, improving settlement liquidity.

[Provided by the Ministry of Economy and Finance]
[Provided by the Ministry of Economy and Finance]

A won international settlement network enabling won-denominated transactions overseas began a pilot run on Sept. 21. Six overseas branches of domestic banks — including KB, Woori, Hana and Shinhan — have registered as Registered Foreign Institutions for Korean Won and are conducting won transactions through the network. The government plans to bring additional foreign financial institutions on board before the full launch in January.

The government is also moving to reduce the burden on securities settlement. Starting Tuesday, the Korea Securities Depository's settlement facilitation payments can be made in securities as well as cash. Next month, securities expected to be received through same-day exchange settlement will also be recognized as eligible collateral. Guidelines allowing firms to forecast payment amounts in advance were distributed on Aug. 26.

The government compiled 38 questions and answers addressing key inquiries from foreign investors and financial institutions on foreign exchange reform and distributed them Tuesday, with plans to add and update entries going forward. Officials also briefed participants on efforts to extend domestic securities trading hours through the establishment of an after-market session on Korea Exchange.

Participating investors said easing overseas borrowing restrictions for foreign securities firms would improve the convenience of securities settlement and trading for foreign investors. They also viewed positively the government's ongoing efforts to incorporate market feedback into its reform agenda. However, they said the detailed operation of the new systems and their actual use should be consistently monitored.

On the planned shortening of the stock settlement cycle to T+1, investors said the move should proceed only after sufficient preparation and a pilot run. The government said it would communicate fully with domestic and international market participants throughout the process.

The Ministry of Economy and Finance and relevant agencies agreed to review and address operational difficulties based on investor feedback. The Global Core Investor Consultative Body will continue to operate as a regular communication channel to improve foreign investors' access to the domestic market.


fact0514@heraldcorp.com