South Korea confirms launch of 24-hour dollar-won trading from July 6 in MSCI upgrade push

⦿ Executive Snapshot

What: South Korea is launching 24-hour dollar-won spot trading starting July 6, with a trial period commencing June 29.
Who: South Korea's Ministry of Economy and Finance and foreign market participants.
Why it matters: This liberalisation effort aims to improve the accessibility of the won and secure an MSCI upgrade from emerging to developed market status.

Dollar-won spot trading will extend to 24 hours from July 6, the first time the market has operated continuously.
A trial period will run from June 29 ahead of the official launch.
Trading hours will run from 6:00am Monday to 6:00am Saturday Seoul time, shifting to 7:00am starts during US winter time.
The reform is a core government initiative aimed at improving the global accessibility of the won and securing an MSCI reclassification from emerging to developed market status.
Regulatory changes accompanying the launch include relaxed reporting requirements for non-residents, simplified registration procedures, and the introduction of an offshore won settlement system.

The move represents the most significant liberalisation of South Korea's foreign exchange infrastructure in decades, addressing longstanding barriers for foreign institutions.
The extended trading hours are a response to MSCI's concerns regarding Korean market accessibility, with a successful reclassification expected to trigger substantial passive inflows into Korean assets.

The immediate consequence includes enhanced market accessibility for foreign investors, reducing reliance on less liquid proxy markets.
Long-term implications involve potential increases in capital flows due to the reclassification, as passive funds tracking developed market indices will have to boost their Korean allocations.

Potential risks include regulatory or execution challenges during the trial period, particularly with thinner liquidity in extended hours amplifying volatility.
Competition from other developed markets could hinder the effectiveness of the reforms if they do not sufficiently attract foreign investment.

The trial period beginning June 29 will serve as an early test for market resilience and liquidity management.
Future developments to watch include MSCI's response to the reforms and any updates on the success of the offshore won settlement system implementation.