24-hour won trading begins on 6 July, boosting global investor access but raising volatility risks.
JAKARTA – South Korea has officially ended decades-old restrictions on currency trading by opening the won market for 24 hours starting 6 July.
Several banks began testing the new trading system on Monday as the final stage before full implementation.
The change marks a major shift in South Korea’s foreign exchange policy. Previously, the government tightened access to the won following the 1997 Asian financial crisis. Seoul is now instead opening the market more broadly to meet the accessibility standards required by MSCI for an upgrade to developed market status.
However, the liberalisation also brings consequences for market participants.
“When I first came to the market, it was a 9-to-3 game,” said Namkoong Taehun, a foreign exchange dealer at Hana Bank who has worked in the industry for 18 years, as quoted by Reuters.
“You could count the participating financial institutions on one hand.”
According to Namkoong, South Korea’s foreign exchange market has changed significantly compared with when he started his career.
“The market has grown exponentially,” he said.
“I see a significant increase in demand for won-denominated assets, given the number of financial institutions asking about them. We are concerned that our workload will increase significantly.”
Behind the optimism, the biggest challenge comes from the potential for currency volatility as the market enters trading hours with thinner liquidity.
The won is currently trading near its weakest level against the US dollar in 17 years, making it more vulnerable to sharp fluctuations if large transaction flows occur.
The KOSPI index’s record-breaking rally this year has also put pressure on the won exchange rate. Rising share prices have encouraged foreign investors to realise gains, while domestic investors continue shifting funds into the US stock market.
To maintain market stability, the government has introduced several new facilities, including an overseas won settlement system, permission for foreign financial institutions to hold won, and overdraft policies to maintain liquidity flows.
“Previously, foreign financial institutions could only convert money,” said a government official overseeing foreign exchange policy.
“But through the overseas won settlement system, they will be able to directly hold and utilise won.”
The extension of trading hours actually began two years ago when South Korea expanded trading sessions until 2:00 AM to accommodate the London market.
State Street Hong Kong’s Head of FX Sales APAC, Shen Li, said the policy had increased transaction activity outside domestic market hours.
“About 20% of spot trading volume now occurs outside domestic market hours (offshore hours), concentrated in the London morning session,” he said.
“Extending this to 24 hours could further improve the overall liquidity framework.”
Despite continued reforms, MSCI this week still kept South Korea in the emerging market category. The global index provider said foreign investor access and foreign exchange market liquidity had not yet met the standards required for developed market classification.
Meanwhile, banks have begun strengthening human resources to support round-the-clock trading. Hana Bank added three new dealers, Woori Bank expanded its UK team to four people, Shinhan Bank recruited one additional dealer in London, while KB Kookmin Bank added two personnel.
Hana Bank dealer Shin Jae-min said transaction surges could now occur at any time, including outside conventional working hours.
“Sometimes conditions suddenly become extremely intense, such as recently when orders surged after SpaceX went public,” he said.
“Responding to such demand means there is no time to rest, even during highly unusual hours.” (DH/ZH)
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