Financial authorities will introduce a 'Government Bonds integrated trading account' that allows foreign financial investors to place orders collectively, without dividing them by individual investors or funds, when trading government bonds. They will also resolve legal uncertainties to enable foreign banks to provide government bond liquidity to foreign investors in collaboration with domestic banks. This measure aims to enhance foreign access to the Korean market ahead of the actual inclusion of government bonds in the World Government Bond Index (WGBI) this November.
The Financial Commission noted on the 24th it will prepare specific measures to activate the integrated trading and global sales model of government bonds as a follow-up to the 'Directions for the Reform of Investment Procedures for Government Bonds in Korea to Promote WGBI Investment' announced on the 30th of last month. They will also push for amendments to the Capital Markets Act enforcement decree and supervisory regulations to implement this.
With the establishment of the government bonds integrated account in June last year, foreign investors can now settle government bond transactions through the integrated account without creating separate settlement accounts at foreign banks. However, there has been uncertainty in current regulations regarding whether foreign investors can place integrated trading orders on behalf of multiple funds or investors.
Consequently, financial authorities will prioritize guidance by interpreting that integrated trading orders linked to the government bonds integrated account are possible, and plan to amend financial investment business regulations to institutionally clarify this by establishing the government bonds integrated trading account. In the future, foreign investors will be able to place trading orders through the government bonds integrated trading account and settle through the already established government bonds integrated account. This eliminates the effort of differentiating transactions based on individual funds or investors by integrating the entire government bonds trading process.
Global financial companies, which have significant contact with foreign investors, will be in charge of sales and marketing targeting foreign investors, while local financial companies with high access to the government bond market will also activate a global sales model that provides government bond liquidity. To facilitate this, the government will eliminate obstacles that arise when the overseas headquarters of global banks purchase government bonds from their Seoul branches and sell them to foreign investors.
Financial authorities have interpreted that foreign banks can first sell government bonds they do not hold in response to foreign investor demand and then buy them from domestic banks later. This allows foreign financial institutions to conduct short selling of over-the-counter bonds targeting foreign investors.
Additionally, authorities also clarified that domestic banks, which are investment and trading businesses for government bonds, can first sell bonds they do not hold in a limited manner to respond to foreign investor demand, and later buy them in the government bond market. This means domestic banks can also engage in transactions under the global sales model structure.
Furthermore, the government plans to announce a legislative proposal next month to amend the enforcement decree of the Capital Markets Act to allow foreign banks to sell government bonds to domestic banks before the settlement of bonds purchased from foreign investors. This indicates an intention to permit over-the-counter short selling of bonds targeting domestic investment and trading businesses by foreign financial institutions.
The Financial Commission said, 'We will closely monitor market movements to maximize the positive impact of the inclusion of government bonds in WGBI and actively respond if additional measures are needed.'