Transition to follow at least 6 months of integrated testing

Overseas firms call for contingency plans for settlement failures

Offshore won-settlement first investment recorded; registered institutions expand to 11

The government said it will give market participants sufficient time to adapt and verify system stability before implementing a shorter securities settlement cycle.

South Korea's Ministry of Economy and Finance said Tuesday it held the third meeting of its Global Key Investor Consultative Body, chaired by Moon Ji-seong, director general for international economic affairs, to gather feedback from overseas financial institutions on the draft T+1 securities settlement roadmap released Nov. 3.

The central building of Government Complex Sejong in Eojin-dong, Sejong [Newsis]
The central building of Government Complex Sejong in Eojin-dong, Sejong [Newsis]

The meeting was attended by major global asset managers including BlackRock, Vanguard and Amundi, as well as the Asia Securities Industry and Financial Markets Association and the Global Foreign Exchange Division. On the domestic side, participants included the Ministry of Economy and Finance, the Financial Services Commission, the Bank of Korea, the Financial Supervisory Service, the Korea Exchange and the Korea Securities Depository.

The government outlined its plan to establish automated processing infrastructure for trade and settlement data before shortening the settlement cycle, and to give domestic and foreign financial firms adequate time to overhaul their systems and operational procedures. It plans to conduct at least six months of integrated testing to assess market readiness before transitioning to the new settlement framework.

Foreign investors expressed concern that a compressed settlement timeline would increase the operational burden on financial firms and could disrupt actual transaction processing. They said ongoing discussion and refinement would be needed to ensure smooth implementation, including the development of contingency measures for settlement failures.

The meeting also covered progress on foreign exchange market reforms aimed at improving foreign investors' access to domestic financial markets.

The government highlighted the first instance of a Singapore-based financial investment firm using the offshore won settlement system, currently in a pilot phase, to execute a domestic investment. It also noted that the number of institutions registered as offshore won-handling institutions has grown from six at the time of the previous consultative body meeting in September to 11.

Regarding the Bank of Korea's international payment network, set to begin full operations in January, the government called for greater participation from overseas financial institutions. Four domestic banks — KB, Shinhan, Woori and Hana Bank — are currently direct participants, with major global financial institutions expected to join early next year.

Foreign exchange deregulation measures were also discussed. The government said it is pursuing regulatory improvements, including raising the threshold for advance notification to the Ministry of Economy and Finance required when foreign securities firms' domestic subsidiaries borrow won offshore — from 1 billion won ($744,000) per year to 50 billion won.

Foreign investors said the regulatory changes would help improve conditions for domestic investment. However, they said the benefits would need to be accompanied by internal operational reforms within financial firms and improvements to existing transaction practices before the effects could be felt on the ground. Some also called for clearer operational guidelines for each regime.

The Ministry of Economy and Finance said it would "continue to monitor closely through the consultative body to ensure that the outcomes of foreign exchange and capital market reforms are actually utilized and felt in the investment process, while also developing further improvement measures."


y2k@heraldcorp.com