Seoul’s foreign exchange market will shift to a 24-hour, five-day-a-week system starting the 6th. But keeping the market open longer does not automatically increase won trading. As long as Korean stock and bond trading and foreign capital execution remain concentrated in Seoul trading hours, won trading is likely to follow that flow even if the FX market stays open overnight.
Korea already extended its FX market closing time once in July 2024, from 3:30 p.m. to 2 a.m. the next day, but most trading still clusters in daytime hours. An analysis by The Seoul Economic Daily of June won-dollar exchange rate trading volume in 30-minute intervals found that 77.3% of all trading was concentrated in the Seoul trading hours from 9 a.m. to 3:30 p.m. The 30-minute segment just before closing had the highest share at 13.6%, while the overnight hours from 10:30 p.m. to 2 a.m. accounted for just 2.4%. This is why the FX market opening 24 hours risks remaining “half-empty,” unaccompanied by trading volume. When trading volume is small and order books form thinly, prices can swing even on small volumes, potentially increasing volatility.
Opening the FX market 24 hours has long been regarded as a task Korea must resolve. It is a precondition for inclusion in the Morgan Stanley Capital International (MSCI) developed markets index. Henry Fernandez, MSCI’s chief executive officer (CEO), has pointed out that “the only place you can buy won is during business hours in Seoul.” The government is pursuing the Registered Foreign Institution (RFI) system and the establishment of an offshore won settlement network together precisely to resolve such market accessibility issues.
But opening the market does not immediately activate trading. A trade is completed only when it proceeds through confirming won balances, handling shortfall funds, settlement, and reflection in the books. Even if trades are executed on domestic public holidays or during early morning hours, actual settlement and accounting reflection must be processed according to bank business days and global settlement practices.
Ultimately, for a 24-hour FX market to lead to a real increase in trading, it must be backed by liquidity that allows won to be procured and settled even at night. Lee Seung-heon, an economics professor at Soongsil University and former Bank of Korea deputy governor, said, “The offshore won settlement network is necessary infrastructure, but the core is ultimately won liquidity. Only when foreign financial institutions can borrow and settle the won they need in a timely manner even during New York and London trading hours can actual trading become active.”
The burden on the banking sector supporting 24-hour trading is also considerable. Large banks with overseas offices cover the early morning hours with London staff or maintain Seoul shift systems, but small and mid-sized banks plan to operate unmanned with auto-hedge systems after 2 a.m. The costs of building and maintaining systems arise regardless of trading volume.
Ultimately, the key to increasing won trading is inducing foreigners to invest in the won and to come to the Korean market. The first step is strong economic growth exceeding potential growth. Korea’s nominal growth rate this year is likely to exceed 10%, but there is no shortage of doubt over what amounts to one-wheel growth driven by semiconductors. The government must give investors confidence in how it will efficiently use fiscal resources, such as excess tax revenue from semiconductors, for future competitiveness.
Resolving the Korea Discount by improving corporate governance and other areas, many of which are still assessed as backward, is also a task the government must address. Among foreign investors, there are still voices of suspicion that Korean companies are suppressing their share prices to ease inheritance tax burdens. It is time to consider bold, investor-friendly tax law reform.
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