Author: Seungkyu Lim
SEOUL (Reuters) – South Korea is considering relaxing real-time reporting requirements for investors in the nation’s $1.8 trillion bond market as it seeks inclusion in the Russell global bond index, three people familiar with the matter said.
The Treasury Department and the Financial Supervisory Service (FSS) are in talks to change the requirement for banks to report any bond trading on the over-the-counter market to authorities within 15 minutes of each transaction.
The rule has become a major problem in the government’s efforts to attract global investors to the Korean bond market. This issue will also need to be resolved as Korean bonds move to the Euroclear settlement platform from July this year.
No decisions have been made on specific changes to the rules, but they could include reducing reporting requirements to once or twice a day, the sources said, including a Treasury official who asked not to be identified. The current reporting deadline of 7:00 p.m. local time will also need to be addressed.
“Many foreign institutions have noted that the requirement to manually report transactions every 15 minutes is a limitation in the efficient conduct of transactions, and we are working to improve this,” said a source directly involved in the government discussions, who declined to answer questions. named due to the sensitivity of the issue.
“We are communicating with the relevant authorities to facilitate them,” he said.
The FSS, South Korea’s market regulator, declined to comment.
The changes will follow recent reforms by Asia’s fourth-largest economy as it seeks to shed its emerging-market classification and gain recognition from major global market benchmarks.
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Inclusion in the FTSE Russell World Government Bond Index (WGBI), for example, could attract tens of billions of dollars in inflows, analysts say.
Authorities are now seeking to ease a set of rules for banks and brokerages created after the financial crises of past decades and designed to monitor key risks of capital flight.
South Korean government bonds have been on FTSE Russell’s watch list for inclusion in the WGBI since September 2022, and easing the 15-minute reporting requirement could improve prospects for inclusion in the index, the people said.
FTSE Russell is due to publish an update on its WGBI components in September.
South Korea needs to improve in areas such as a “robust regulatory environment” and “investment restrictions” to meet minimum standards for inclusion in the WGBI, FTSE Russell said in its 2022 report.
FTSE Russell determines WGBI inclusion based on an investor survey of market accessibility.
Foreign investors make up about 10% of the country’s bond market.
Currently, details of all over-the-counter transactions, including price, quantity, timing and parties involved, must be reported in real time to the Korea Financial Investment Association, an industry body.
Global banks say real-time reporting obligations now pose significant barriers to foreign investors wanting to buy large quantities of Korean bonds.
Among the regulatory reforms South Korea recently adopted to expand foreigners’ access to its financial markets was the repeal of a 30-year-old rule requiring foreigners to register with authorities to trade listed stocks. The trading hours for won on the land market will also be extended.
In 2022, the government eliminated taxes on foreign income from investments in Treasury bonds and monetary stabilization bonds.
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