The government announced follow-up measures to activate nighttime transactions as it marks the one-year anniversary of the extension of foreign exchange market trading hours. To increase participation from foreign financial institutions, the minimum transaction volume requirement for registered foreign currency transaction institutions (RFI) was specified as "an average of $100 million over the past three years." Additionally, the reporting obligation for RFIs to the Bank of Korea's foreign exchange computer network will be extended by an additional six months until the end of this year.
On the 4th, the Ministry of Economy and Finance and the Bank of Korea revealed the details of the "measures for further improvement of foreign exchange market trading hours extension."
The foreign exchange market opening hours were initially from 9 a.m. to 3:30 p.m., but were extended from July 1 of last year until 2 a.m. the next day. This has allowed the trading hours to encompass one of the world's largest foreign exchange markets in London, England.
At the same time, the foreign exchange authorities have been allowing foreign financial institutions to participate directly in the domestic foreign exchange market since January of last year. So far, a total of 52 institutions have registered as RFIs and are participating in the domestic foreign exchange market.
The results over the past year have also been significant. From July of last year to June of this year, the average daily spot foreign exchange transaction volume in our foreign exchange market was $12.31 billion, which is a 16.3% increase compared to the previous year. Compared to the average over the past five years (2019-2023), this is an increase of about 44.6%. The average daily transaction volume during the extended trading hours (3:30 p.m. to 2 a.m.) was also $2.22 billion, accounting for 18% of the total.
The government included supplementary measures for the system's establishment in this plan.
First, it clarified the transaction performance standard, one of the requirements for RFI registration. Going forward, institutions must maintain an average transaction performance of $100 million over the past three years. In calculating transaction performance, not only "interbank market transaction performance" but also "direct transaction performance" will be reflected at 50%. The criteria will be applied starting next year.
Additionally, the grace period for the reporting obligation of RFIs to the Bank of Korea's foreign exchange computer network has been extended by six months from the end of June to the end of December. This measure responds to requests from foreign institutions that need more time for system construction and internal approval procedures.
A system aimed at enhancing customer convenience in foreign exchange transactions will also be pursued. The amendment to the Foreign Exchange Transaction Act was completed last March and is set to take effect on September 19. The government aims for the "customer foreign exchange brokerage service" to enhance currency exchange convenience for foreign investors and domestic and international corporations and institutions to officially launch next year. To this end, it is currently revising subordinate regulations and undergoing approval procedures.
In addition, the government selected five RFIs with outstanding transaction performance in the domestic foreign exchange market as the first "pioneer RFIs." The institutions include Deutsche Bank's London branch, Hana Bank's London branch, Standard Chartered Bank's London headquarters, State Street Bank's Hong Kong branch, and State Street Bank's London branch.
These institutions will receive incentives such as exemption from sanctions once a year for violations of foreign exchange reporting obligations and certificates of commendation from the Ministry of Economy and Finance. The foreign exchange authorities plan to establish regular consultation channels with these institutions to serve as a communication platform for monitoring market conditions and discussing regulatory improvements.
A government official noted, "Through these follow-up measures, we expect the effectiveness of the RFI system to be further strengthened and the trading during extended hours to be more active" and added, "We will continue to actively consult with market participants to find tasks to improve foreign investors' access to the domestic capital market."