Foreign investors who invest in domestic stocks and bonds will see significant improvements in the complex foreign exchange procedures they have faced so far. It is expected that the accessibility of foreign investors to the domestic market and the Korean won will improve.
The Bank of Korea and the Ministry of Economy and Finance announced on Feb. 21 that they will allow temporary won borrowing, known as overdraft, when converting won for foreign investors to enhance their investment activity in the domestic capital market.
Foreign investors have primarily engaged in foreign exchange transactions through their main trading banks to mitigate the risk of payment failures stemming from time differences between domestic and foreign markets, complex remittance and collection procedures between banks, and potential computer errors. However, this practice has restricted opportunities for cost savings on currency exchanges and has served as a deterrent for foreign investment in the domestic market.
To address these inconveniences, the government plans to allow foreign investors to borrow won for securities settlements from financial institutions other than their main trading banks in the future. In cases where a temporary won shortage arises during the currency exchange process for securities settlements, foreign investors will be authorized to borrow the necessary funds for securities trading settlements, provided they can demonstrate to domestic custodian banks the existence of an actual foreign exchange transaction contract.
The system will be revised to allow foreign investors, who invest in the domestic capital market through global asset management companies, to conveniently exchange currencies into their integrated stock accounts without the need to open separate cash accounts in their own names. Previously, even if corporations were the same, separate investment registrations and the opening of securities and cash accounts were required for each fund operated. However, there are plans to simplify this process.
Furthermore, when foreign investors invest in government bonds and monetary stabilization bonds through an international central securities depository such as Euroclear or Clearstream, the convenience of won transactions will also be improved.
A government official emphasized, “We plan to drive revisions to the foreign exchange transaction regulations in the first quarter of this year to swiftly establish the new system.”