South Korea may tighten forex derivatives rules: official
South Korea may start checking banks’ foreign-exchange derivatives positions more frequently, a finance ministry official said on Monday, as regulators seek to strengthen the country’s defences against rapid foreign capital flows.
Banks may be required to meet their currency derivatives ceilings every week or even every day, compared with the present rule which applies on a monthly basis, the official said by telephone, while declining to be identified.
“This is the easiest step to implement quickly compared to other options,” the official said, without specifying when the tighter rules could be announced.
South Korea already lowered the ceilings on banks’ foreign currency derivatives positions in November, seeking to stem the flow of hot money into its markets. The Korean won traded at a 15-month high early on Monday and is up nearly 7 per cent against the dollar so far this year, putting more pressure on the country’s struggling exporters.
Local policymakers have repeatedly voiced concerns about the currency’s strength. Its appreciation has accelerated since September despite weak economic indicators, which officials said may be due to speculation.
From January 1, 2013, ceilings on currency derivative positions will be cut to 30 per cent of equity for local banks from the current 40 per cent while the cap for the foreign bank branches will be cut to 150 per cent from 200 per cent.
Based on current regulations, a bank that exceeds the derivatives cap will have its cap reduced based on how long the firm breached the cap and by how much.
The finance ministry official said the foreign-exchange authorities are also considering steps against non-deliverable forwards market and foreigners’ bond investment in order to further bolster existing capital flows management regulations. He did not offer specifics, however.