Rules for foreign investors eased
Published: 31 Jan. 2016, 20:43
Korea will simplify its current foreign investor registration system to attract more non-Korean investors and expand the size of the equity market.
The Financial Services Commission (FSC) on Sunday announced its plan to introduce an Omnibus Account, an integrated and simplified registration system for foreigners, to make it easier for foreign investors to trade locally-listed stocks in the Korean stock market.
The ultimate goal of the eased regulations is to achieve a development market status in the Morgan Stanley Capital International (MSCI) indexes.
The financial regulator is revising the registration system for the first time in 24 years as it believes improvements are necessary to expand the size of the local market by attracting more non-resident investors by making access more convenient.
There is a growing need for the current foreign investor registration system to improve in accordance with changes in investment environment and practice, the FSC said.
“As the Korean capital markets have become mature, index-tracking passive funds are taking an increasing share of the Korean stock market,” the regulator said in a press release. “Such passive funds are sensitive to transaction costs as they frequently trade in many countries.”
Under the newly-introduced Omnibus Account, foreign investors will be able to invest in a number of different funds by opening a single account.
Currently in Korea, foreigners have to open a new account for every single fund, which requires higher costs for asset management firms. When foreign investors want to buy Korean shares through overseas securities firms they must open separate accounts with Korean securities firms.
These procedures have been considered a major hurdle for the Korean stock market to be included in the list of MSCI developed markets.
Korea has banned the integration of accounts since 1992, despite the increased use of omnibus accounts worldwide, because of the difficulty in monitoring inflows and outflows of foreign capital.
To maintain its monitoring on capital moves, the FSC will require foreign asset management and securities firms to report trades to the Financial Supervisory Service two days after actual transactions are made.
The new system is expected to reduce transaction costs of global asset management companies and make foreign investors’ trading of locally-listed stocks through global securities firms more convenient.
“Foreign individuals and institutional investors will be able to make investments via the omnibus account system made by global securities firms, making their investments in Korean shares much easier,” said Kim Hak-soo, director general of the capital market bureau at the FSC. “Global asset management firms will also benefit from the simplified system, which will reduce administrative work in managing accounts for each fund.”
“The government will keep monitoring the capital movements by mandating reporting for the foreign entities,” he added.
The FSC will revise the current regulations on financial investment businesses and implement the new system. Some foreign asset management firms and securities firms will test the new system starting in May. It will be expanded to all firms next year.
With the introduction of the new system, the FSC will seek the status of a developed nation in MSCI’s equity indices in June. The status is expected to bring larger opportunities, including access to bigger global funds.
Korea was taken off the list of MSCI developed market candidates in 2014, largely due to three inconvenience issues, including opening of separate Korean accounts, which was raised by foreign investors. Another issue is the limited convertibility of the won, which the financial regulator is discussing with the Ministry of Strategy and Finance.
The MSCI also pointed out that Korea Exchange’s reluctance to list the local stock indexes on foreign exchange boards is also a problem.
“The Korea Exchange is trying to make numerous changes to become a competitive stock exchange operator,” the official said. “For example, it is attempting to turn into a holding company, and if that’s successful, there will be some meaningful progress.”
BY SONG SU-HYUN, KIM JI-YOON [[email protected]]
The Financial Services Commission (FSC) on Sunday announced its plan to introduce an Omnibus Account, an integrated and simplified registration system for foreigners, to make it easier for foreign investors to trade locally-listed stocks in the Korean stock market.
The ultimate goal of the eased regulations is to achieve a development market status in the Morgan Stanley Capital International (MSCI) indexes.
The financial regulator is revising the registration system for the first time in 24 years as it believes improvements are necessary to expand the size of the local market by attracting more non-resident investors by making access more convenient.
There is a growing need for the current foreign investor registration system to improve in accordance with changes in investment environment and practice, the FSC said.
“As the Korean capital markets have become mature, index-tracking passive funds are taking an increasing share of the Korean stock market,” the regulator said in a press release. “Such passive funds are sensitive to transaction costs as they frequently trade in many countries.”
Under the newly-introduced Omnibus Account, foreign investors will be able to invest in a number of different funds by opening a single account.
Currently in Korea, foreigners have to open a new account for every single fund, which requires higher costs for asset management firms. When foreign investors want to buy Korean shares through overseas securities firms they must open separate accounts with Korean securities firms.
These procedures have been considered a major hurdle for the Korean stock market to be included in the list of MSCI developed markets.
Korea has banned the integration of accounts since 1992, despite the increased use of omnibus accounts worldwide, because of the difficulty in monitoring inflows and outflows of foreign capital.
To maintain its monitoring on capital moves, the FSC will require foreign asset management and securities firms to report trades to the Financial Supervisory Service two days after actual transactions are made.
The new system is expected to reduce transaction costs of global asset management companies and make foreign investors’ trading of locally-listed stocks through global securities firms more convenient.
“Foreign individuals and institutional investors will be able to make investments via the omnibus account system made by global securities firms, making their investments in Korean shares much easier,” said Kim Hak-soo, director general of the capital market bureau at the FSC. “Global asset management firms will also benefit from the simplified system, which will reduce administrative work in managing accounts for each fund.”
“The government will keep monitoring the capital movements by mandating reporting for the foreign entities,” he added.
The FSC will revise the current regulations on financial investment businesses and implement the new system. Some foreign asset management firms and securities firms will test the new system starting in May. It will be expanded to all firms next year.
With the introduction of the new system, the FSC will seek the status of a developed nation in MSCI’s equity indices in June. The status is expected to bring larger opportunities, including access to bigger global funds.
Korea was taken off the list of MSCI developed market candidates in 2014, largely due to three inconvenience issues, including opening of separate Korean accounts, which was raised by foreign investors. Another issue is the limited convertibility of the won, which the financial regulator is discussing with the Ministry of Strategy and Finance.
The MSCI also pointed out that Korea Exchange’s reluctance to list the local stock indexes on foreign exchange boards is also a problem.
“The Korea Exchange is trying to make numerous changes to become a competitive stock exchange operator,” the official said. “For example, it is attempting to turn into a holding company, and if that’s successful, there will be some meaningful progress.”
BY SONG SU-HYUN, KIM JI-YOON [[email protected]]
with the Korea JoongAng Daily
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