Korea Securities Finance will enter the foreign exchange (FX) swap brokerage market to strengthen its role as a foreign currency funding channel for securities firms. Until now, the FX swap brokerage function had been limited to the banking sector. Korea Securities Finance plans to begin brokerage operations next year.
According to the financial investment industry on the 19th, Korea Securities Finance received authorization on the 17th from the Financial Services Commission to participate in the FX swap brokerage market. The Securities and Futures Commission under the Financial Services Commission approved Korea Securities Finance's related financial investment business change agenda on the 10th.
An FX swap is a contract to exchange different currencies for a set period. Securities firms use it to raise foreign currency in the short term or to hedge exchange risk.
Participation in the brokerage market had been limited to the Ministry of Economy and Finance, the Bank of Korea, and commercial banks, but in 2023 the ministry revised the foreign exchange transaction regulations, allowing Korea Securities Finance to participate. Following the regulatory revision, the company has built related systems to obtain authorization from the authorities.
Korea Securities Finance, the only dedicated securities finance institution in the country, handles securities finance operations and investor deposit trust services, among others. Since 2021, it has managed not only won-denominated deposits but also foreign currency deposits.
With Korea Securities Finance joining the FX swap market, securities firms will be able to borrow foreign currency more stably than from banks. It has already signed master agreements (ISDA) and credit support annex (CSA) contracts for over-the-counter derivatives transactions related to foreign exchange with more than 10 securities firms, and it plans to continue signing business agreements with securities firms where there is demand.
Securities firms' demand for foreign currency keeps growing. That is because the scale of managing global assets such as U.S. Government Bonds and overseas exchange-traded funds (ETFs) is increasing. The more foreign currency funding channels there are, the more advantageous it is for securities firms to secure foreign currency liquidity.
A Korea Securities Finance official said, "With participation in the FX swap market, the size of dollars we can provide to securities firms and the interest rate terms will improve compared to before," adding, "We plan to complete business registration procedures and additional agreements with securities firms by the end of the year."
Meanwhile, since last year, Korea Securities Finance has adopted a strategy to respond to the globalization of the capital market as one of its three core management strategies and has expanded its foreign currency operations. After establishing a dedicated department for foreign currency operations, it additionally hired specialists in May for foreign exchange settlement and funding and operations.
The company plans to focus on strengthening its business competitiveness by diversifying operating tools, including expanding counterparties for foreign currency repurchase agreement (RP) transactions and managing foreign currency bonds.