Follow-Up Measures to WGBI Inclusion to Promote Global Investors' Investment in KTBs

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Follow-Up Measures to WGBI Inclusion to Promote Global Investors' Investment in KTBs Jan 24, 2025

As follow-up measures to the government’s plan to revamp Korea Treasury Bonds (KTBs) and Monetary Stabilization Bonds (MSBs) Investment Framework announced in December 2024 following the WGBI inclusion, the Financial Services Commission (FSC) and relevant organizations proposed revisions to the enforcement decree and supervisory rules of the Financial Investment Services and Capital Markets Act (FSCMA) and provided authoritative interpretations. The measures are intended to introduce a consolidated trading scheme for KTBs and support smooth implementation of the Global Operating Model.

Introducing Omnibus Trading Accounts for KTBs

The introduction of omnibus settlement accounts for KTBs in June 2024 has enabled foreign investors to settle their KTB transactions via a consolidated account, without opening individual settlement accounts with custodian banks (e.g. a Korean branch of a foreign bank).

However, it still remains unclear whether foreign financial investment service providers are allowed to place consolidated orders of KTB trading on behalf of their clients such as individual funds and investors to be linked with omnibus settlement accounts for KTB transactions.

To address this issue, the FSC and relevant organizations provide authoritative interpretation that foreign financial investment service providers are allowed to consolidate their clients’ orders to be linked with omnibus settlement accounts for consolidated settlements. To make it further clear, the FSC has proposed revisions to the Regulations on Financial Investment Business to newly introduce omnibus trading accounts for KTBs. The introduction of omnibus trading accounts will enhance the convenience for foreign investors by consolidating the overall process of KTB transactions. Under the new scheme, foreign investors will be able to place trading orders via omnibus trading accounts opened with securities firms and banks; and settle the transactions through omnibus settlement accounts opened at Korea Securities Depository (KSD).

Promoting the Global Operating Model

The Global Operating Model is widely adopted in major countries’ government bond markets, in which global banks with a global client base take charge of sales and trading for foreign investors, while local banks with better access to their own treasury markets provide liquidity. For example, in Korea, a global bank’s overseas headquarter (foreign banks) can buy KTBs from Seoul branches (local banks) and then sell them to foreign investors.

Following the introduction of omnibus accounts for KTB settlements (June 2024) and the announcement of Korea’s inclusion in WGBI (October 2024), domestic and foreign banks are preparing to adopt the global operation model to attract foreign investors to the KTB markets. To support smooth implementation of the model, the FSC and relevant organization plan to provide authoritative interpretations and propose regulatory revisions to clear legal uncertainties.

(1) The FSC makes it clear through authoritative interpretation that foreign banks are allowed to sell KTBs that they do not own and then buy them later from domestic banks for the purpose of meeting the demand of foreign investors.

(2) The FSC plans to revise the enforcement decree of the FSCMA to allow foreign banks to buy KTBs from foreign investors and sell them to domestic banks before the settlement of the purchased KTBs.

(3) It is also made clear through authoritative interpretation that domestic banks, who act as dealers, are allowed to sell KTBs that they do not own and then buy them back later in KTB market for the purpose of meeting the demand of foreign investors.

Future Plans

The FSC plans to complete actions requiring authoritative interpretations today and proceed with revisions to the Regulation on Financial Investment Business and the Enforcement Decree of the Capital Markets Act as soon as possible. In implementing the follow-up measures announced today, the government will closely work together with relevant organizations and the financial industry to support the advancement of our capital markets and maximize the positive effects of Korea’s inclusion in the WGBI.

• Please refer to the attached PDF for details.

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