Overview of Securities Business
Business related to open market operations
Issuance and redemption of Monetary Stabilization Bond issued by the BOK
The Bank of Korea(hereinafter, ‘BOK’) carries out open market operations to affect the level of reserves in the banking institutions. In recent years, open market operations have been more actively employed as a tool for achieving policy objectives.
The BOK participates in the open market directly, buying or selling special negotiable obligations it has issued called Monetary Stabilization Bonds(MSBs). Since their introduction, MSBs have played an important role in controlling the reserve positions of banking institutions. For example, the BOK issues MSBs on a large scale when necessary to absorb any vast expansion of money supply.
When issuing MSBs by competitive tender, the BOK selects one or two methods of setting the price, in consideration of financial market conditions: the conventional method, whereby the successful bidding prices or interest rates are individually applied, and the Dutch method, whereby the lowest price or the highest rate among successful tenders is uniformly applied. In practice, the BOK normally uses the Dutch method at present.
Purchases and sales of government and public bonds owned by the BOK
The BOK buys or sells government and public bonds for the purpose of open market operations. The BOK also purchases or sells government and public bonds under repurchase agreements(RPs) with eligible counterparties.
Business for the government
Issuance and redemption of Treasury Bonds
The BOK manages the issuance and redemption of Treasury Bonds. Government bonds are issued to meet the special financial demands of the government sector. Under the National Government Bond Act, the Ministry of Strategy and Finance (MOSF) issues government bonds. The MOSF coordinates all of the demands for the issuance of public debt and draws up a budget proposal. This proposal must be presented to the National Assembly for approval.
Korea Treasury Bonds
These bonds are issued under the National Government Bond Act. They mostly have 3-, 5-, 10-, 20-, 30- and 50-year maturities with every-six-month interest coupons. As the fiscal agent, the Bank of Korea conducts issuance and redemption of Korea Treasury Bonds for the government.