By Kim Jae-won
The nation's bourse operator said Tuesday that it cleared the last hurdle to be recognized by the European Union as an international clearing house after the National Assembly passed a bill earlier this month to revise a related law.
With the revision, the Korea Exchange (KRX) said it can compensate investors directly as a central counterparty clearing house (CCP) when a member brokerage house fails to pay investors in the case of default. A CCP carries out clearing and settlement of market transactions.
The European Securities and Markets Authority (ESMA), an authority safeguarding the EU's financial system, has asked the local operator to reflect this condition, saying it is an international norm.
"The requirement is part of the principles for financial market infrastructure set up by the Bank for International Settlements. It is important to keep the rules because international investors consider them before they decide which markets to invest in," said a high ranking official of the KRX, asking not to be named.
He said that EU recognition is crucial for the bourse operator which seeks to become a global player. The EU decision is expected to come by November. The KRX has waited for almost two years since it applied for recognition in September 2013.
So far, only four markets in the Asia Pacific region -- Japan, Hong Kong, Singapore and Australia -- have been recognized by the European authority.
"The recognition from the ESMA will be appreciated by the U.S. and the International Monetary Fund which offer such information to international investors. If we fail to get the recognition, global investors may avoid investing in our markets," said the KRX official.
Market watchers said the recognition will help foreign investors, particularly from Europe, invest in local derivatives markets more comfortably with few worries about a possible contagion of a financial crisis stemming from Korea. European investors account for about 8 percent of the derivatives market in Korea.
The trading volume of the nation's derivatives market soared in the first half from a year ago, recovering from years of decline on the back of a bullish stock market. The derivatives market had 338 trillion contracts in total in the January-June period, up 22 percent from a year ago, the KRX said.
Korea had been the world's top derivatives market by turnover until 2011, but it tumbled to 12th last year as tight access rules were adopted in 2012 to cool down the overheated market. One of the rules requires a deposit for investors to enter the market and the government is set to levy capital gains tax for derivatives starting from next year.