Subscribe
E-Paper
By Kim Jae-won
The Korea Exchange (KRX) is seeking to be officially recognized by the European Commission (EC) to accommodate European investors, the nation's bourse operator said Wednesday.
The KRX said that the authorization as a qualified central counterparty (CCP) from the executive body of the European Union is crucial because European banks could pull their funds out of the derivatives market here, should the bourse operator fail to get it.
European lenders account for about 8 percent of the derivatives market in Korea.
"This is a very important issue for us. We are sparing no efforts to get recognition in cooperation with the financial regulator," said Park Sang-wook, a senior manager at the KRX.
CCPs carry out two main processes — the clearing and settlement of market transactions. Clearing relates to identifying the obligations of both parties on either side of a transaction while settlement occurs when the final transfer of securities and funds takes place.
Park said that the EC's decision is more significant for the country because it will be a barometer for the U.S., which is also moving to evaluate foreign stock markets to protect its financial institutions.
Analysts said international recognition as a CCP is one of the key elements that foreign investors consider before they invest.
"Foreign investors put their emphasis on the stability of trade in derivatives markets," said Hwang Se-woon, a senior analyst at the Korea Capital Market Institute (KCMI).
Hwang said that the role of CCP is also expected to expand to other businesses, such as repurchase agreements, or repos, a form of short-term borrowing for dealers in government securities.
So far, only four countries in the Asia Pacific region — Japan, Hong Kong, Singapore and Australia — have been recognized by the EC. Korea applied for the recognition in September 2013, and the result is expected in June.
The bourse operator said that the Financial Services Commission's (FSC) announcement to adopt 24 principles for its financial market infrastructure will help the EC recognize the KRX as a CCP. International financial organizations introduced the principles to enhance the safety and efficiency of their financial market infrastructure and to prevent cross-border risk contagion.
The KRX also said that the FSC submitted a bill to the National Assembly to revise the Financial Services and Capital Market Act to cope with international regulations in December. The bourse operator expects parliament will pass the bill by the end of this month.
