Unlocking the Potential: Deliverable KRW and its Impact on the Market"

KRW: The benefits of deliverability

We released an article today looking at Korean officials' plans to make the Korean won deliverable - perhaps as early as next year. The heart of the plan is to start running a pilot in early 2024, where Registered Foreign Institutions (RFIs) can clear the Korean won with onshore banks, while the international customers of the RFIs can clear won with the RFIs. Additionally, Korea's limited onshore trading hours plan to be extended beyond the London close. The motives for these changes are Korea wanting a re-rating of its local capital markets on the back of these less restrictive FX measures.

These plans can have plenty of benefits for the market. The first, based on ING eFX data, is that USD/KRW bid-offer spreads out of Asia hours could substantially narrow on the back of the extension of the onshore trading day. Additionally, there is plenty of scope for bid/offer spread compression if USD/KRW FX product volumes edge towards those of Singapore and Hong Kong. Plus there will be benefits from hedging against an FX swap than a local NDF fixing and corporates can benefit from cash pooling and the potential for central treasuries to price internally in Korean won and manage the FX hedge at the central not local level.