Structure of the Market

The foreign exchange market in Korea is divided into OTC markets and exchanges. The OTC markets consist of a customer market, where foreign exchange banks deal with customers such as importers, exporters, travelers and nonresidents, and an interbank market, where foreign exchange banks deal among themselves.

Foreign exchange banks mainly participate in the interbank market to dispose of open positions arising from transactions with non-financial sector customers such as firms and nonresidents. Most interbank transactions are traded through brokers. Foreign exchange brokers intermediate between foreign exchange banks without holding any positions. In order to operate a foreign exchange brokerage business, it is necessary to obtain authorization from the Ministry of Strategy and Finance. At present, there are ten foreign exchange brokerage companies, Seoul Money Brokerage Services, Ltd, Korea Money Broker Corporation, ICAP Foreign Exchange Brokerage Ltd, Tullett Prebon Money Brokerage(Korea) Ltd, GFI Korea Money Brokerage Ltd, Nittan Capital Money Brokerage(Korea) Ltd, Tradition Korea, BGC Capital Markets & Foreign Exchange Broker(Korea) Ltd, KIDB Money Brokerage Corporation and IPS Corporation.

Financial institutions participating in the interbank foreign exchange market have been running an autonomous committee, the Seoul Foreign Exchange Market Committee. Foreign exchange brokers, the Bank of Korea and the government also participate in the committee, The committee has been working energetically to facilitate foreign exchange market development by means of active private sector participation.

It drew up a Code of Conduct in December 2001 with the standard codes of the major international financial markets as its model. It has also put into operation two sub-committees, the Committee for Improving Market Practices and the Committee for Market Surveillance and Dispute Resolution (refer to Appendix 2. The Seoul Code of Conduct).

Structure of the Korean Foreign Exchange Market

Establishment of the Won-Yuan Direct Trading Market

On July 3, 2014, the head of states from Korea and China shared an understanding that vitalizing currency trade between the two countries is mutually beneficial, and agreed to open the won-yuan direct trading market as part of a policy project to improve the utilization of the yuan in Sino-Korean trade and financial transactions. To this end, the Seoul Foreign Exchange Market Committee pushed ahead with developing a brokerage system and introducing a market maker system with the aim of opening the won-yuan direct trading market within 2014. Consequently, the direct trading market officially opened on December 1.

The Won-Yuan Direct Trading Market was successfully implemented owing to the operation of the market maker system. The market reached an average daily trade volume of around 2.0 billion US dollars in 2016, accounting for as much as 14 percent of the won-dollar average daily trade volume for the same period. The direct-trading exchange rate showed a stable pattern, aligning with the cross exchange rate between the won-dollar and yuan-dollar exchange rates. As the won-yuan direct trading replaced the previous system of two stage trading, consisting of the initial won-dollar trade and the subsequent yuan-dollar trade, trading costs fell and big companies took the lead in using the yuan to pay more trade settlements, which also raised the ratio of yuan-based payments for trade settlements to China.