Korea to ease FX rules, allow foreign stock trading without local accounts

(Yonhap)

South Korea will ease foreign-exchange regulations and allow foreigners to trade local stocks without opening domestic brokerage accounts as part of efforts to stabilize dollar supply amid a strong won-dollar exchange rate.

The Ministry of Economy and Finance, the Financial Services Commission, the Bank of Korea and the Financial Supervisory Service announced Thursday a package of measures to flexibly adjust the foreign-exchange stability framework and encourage capital inflows. The move reflects concerns that existing rules, designed to curb external debt and limit foreign capital inflows, are ill-suited to counter growing outflows driven by expanding overseas investment by Korean residents.

Under the plan, supervisory actions tied to advanced foreign-currency liquidity stress tests for financial institutions will be temporarily suspended until the end of June next year. Authorities acknowledged that the current framework has led banks to hoard excessive foreign-currency liquidity to avoid regulatory action.

The government will also ease forward-position limits for foreign bank branches in Korea, raising the cap from 75 percent to 200 percent of capital. Officials said the current ceiling does not adequately reflect the actual business structure of foreign banks and has constrained additional inflows of foreign currency.

In addition, foreign-exchange banks will be allowed to extend foreign-currency loans for domestic working capital, not just for facility investment by exporters. Authorities expect the measure to help ease downward pressure on the won by encouraging conversion of overseas funds into local currency.

The government will also promote the use of omnibus accounts, allowing foreign investors to trade Korean stocks directly through overseas brokers without opening accounts at local securities firms. The move is expected to attract more overseas retail investors and contribute to stabilizing foreign-currency supply.

Officials said follow-up measures will be completed within the year, adding that increased hedge demand and improved liquidity in foreign-currency funding markets should help alleviate structural imbalances in foreign-exchange supply and demand.