SEOUL: South Korea will extend trading in its foreign-exchange (forex) market and ease restrictions against overseas investors in a bid to encourage more foreign participation – reversing a decades-old policy intended to limit volatile capital flows.

       Onshore dollar-won spot market trading hours will be extended significantly from the current 9:00am to 3:30pm local time span, the finance ministry said in a statement yesterday, without providing details.

       Restrictions against foreign financial firms trading the won overseas will also be eased.

       “It is desirable that we push forward such measures as fast as possible, but not to the extent where financial players are not able to prepare for the changes,” Kim Dong-ick, director of the finance ministry’s international finance bureau, said in a phone interview after the announcement.

       The government in February will push for talks with MSCI Inc to join its developed-market equities index, after preparing a final plan based on domestic and external feedback, the statement said.

       Authorities have initiated a slew of measures to court foreign investors and boost the case for the nation’s stocks to be included in MSCI’s developed-market stock index.

       A local forex committee has been looking into ways to address the challenges faced by global funds that trade the won outside local hours.

       South Korea has been wary of opening up its forex market after two financial crises since 1997 triggered capital outflows.

       Given the restricted hours, overseas investors currently rely on non-deliverable forwards to manage their exposure to the won offshore.

       Discussions over the extension of trading hours for the currency market have been ongoing for a while.

       The efforts intensified in December when the government said it would overhaul the law on forex transactions this year, and introduce an electronic platform to grant foreign investors and local firms access to real-time data and trading.

       The first draft of details on the forex systems reform will be prepared within the first half of the year, while the electronic platform will go into effect sometime in the latter half, according to the statement.

       Extended trading hours for the won will also address one of MSCI’s key concerns about including South Korean equities in the MSCI World Index.

       The index provider will release the results of its review next month, and South Korea is seeking an upgrade from emerging- to developed-market status.

       The finance ministry also said it will consider market conditions before revising other rules, including the cap on banks’ forex forward positions and forex liquidity coverage ratio, which were eased during the height of the pandemic to boost liquidity.

       It will take timely steps to stabilise markets if volatility increases, the statement said. — Bloomberg