By Seunggyu Lim
SEOUL (Reuters) – South Korea is considering relaxing real-time reporting requirements for investors in the country’s $1.8 trillion bond market as it seeks inclusion in Russell’s global bond index, three people familiar with the matter said were on the case.
The Treasury Department and the Financial Supervisory Service (FSS) are in talks to change the requirement for banks to report any bond trading in the over-the-counter market to authorities within 15 minutes of each transaction.
That rule has been a major sore point in the government’s efforts to attract global investors to the Korean bond market. This issue should also be addressed as Korean bonds move to the Euroclear settlement platform from July this year.
No decisions have been made yet on the specific changes to the rules, but reporting requirements could be reduced to once or twice a day, said the sources, including a Treasury official who declined to be named . The current local deadline of 7 p.m. for reporting should also be addressed.
“Many foreign institutions have pointed out that the requirement to manually report transactions every 15 minutes is a limitation in executing transactions efficiently, and we are working to improve that,” said a source directly involved in the government discussion, who declined to be informed. mentioned because of the sensitivity of the problem.
“We are communicating with the relevant authorities to alleviate them,” he said.
The FSS, South Korea’s market regulator, declined to comment.
The changes are said to follow recent reforms introduced by Asia’s fourth-largest economy as the country seeks to shed its emerging market classification and gain acceptance in key global market benchmarks.
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Inclusion in FTSE Russell’s World Government Bond Index (WGBI), for example, could attract tens of billions of dollars in inflows, analysts say.
Authorities are now seeking to relax a set of rules for banks and brokers created after the financial crises of recent decades and designed to monitor major capital flight risks.
South Korean government bonds have been on FTSE Russell’s watchlist for inclusion in the WGBI since September 2022 and relaxing the 15-minute reporting requirement could improve prospects for inclusion in the index, the sources say.
FTSE Russell will provide an update on its WGBI constituents in September.
South Korea needs to make improvements in areas such as a “sound regulatory environment” and “investment restrictions” to meet minimum standards for inclusion in the WGBI, a FTSE Russell report said in a 2022 report.
FTSE Russell determines WGBI inclusion based on an investor survey of market accessibility.
Foreign investors represent about 10% of the country’s bond market.
Currently, details of all over-the-counter transactions, including price, quantity, time and parties involved, must be reported in real time to the Korea Financial Investment Association, an industry association.
Global banks say real-time reporting requirements currently pose significant barriers to foreign investors looking to buy large amounts of Korean bonds.
Among the regulatory reforms South Korea recently implemented to increase foreign access to its financial markets was to scrap a 30-year-old rule requiring foreigners to register with authorities to trade listed stocks. Trading hours in the won’s onshore market will also be extended.
In 2022, the government removed taxes on foreigners’ income from investments in government bonds and monetary stabilization bonds.
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