Starting July 6, Korea's won-dollar foreign exchange market will effectively transition to a 24-hour trading system. The Seoul Foreign Exchange Market Operating Council approved changes to the FX market operating framework, including expanded won-dollar trading hours, at its general meeting on the 29th. Under the new system, won-dollar trading hours, previously running from 9 a.m. to 2 a.m. the following day, will operate from 6 a.m. Monday to 6 a.m. Saturday. Trading will also take place on public holidays, except for weekends and January 1, ushering in the era of 24-hour won-dollar trading. Trading hours for other currencies excluding the U.S. dollar will remain unchanged from 9 a.m. to 3:30 p.m. on weekdays.
The significance of operating the won-dollar FX market around the clock is considerable. Eliminating gaps in trading hours will improve foreign investors' access to Korea's FX market and enable export and import companies to respond in real time when the won-dollar exchange rate fluctuates sharply. Above all, market expectations are high because a key obstacle that has blocked the Korean stock market from being included in the Morgan Stanley Capital International (MSCI) Developed Markets Index will be removed. Inclusion in the MSCI Developed Markets Index could serve as a catalyst for advancing the capital market, drawing in hundreds of trillions of won in passive funds.
However, concerns remain that the newly added overnight session after 2 a.m. will have few trading participants. Even minimal transactions could cause the won-dollar exchange rate to swing significantly. There is also considerable scope for amplified volatility if external shocks such as global macroeconomic events occur during this time. With the won-dollar exchange rate already surging to just below 1,520 won, the 24-hour trading system could leave it more vulnerable to speculative trading.
Financial authorities must not take a complacent stance, assuming that the implementation of 24-hour won-dollar trading has brought Korea's FX market one step closer to global standards. To prevent the vulnerabilities of 24-hour FX trading from being exposed, authorities must prepare measures to bolster overnight liquidity in advance and move quickly to build market safeguards, including the operation of thorough monitoring systems. They must also ensure the detection of abnormal trading during overnight hours and the readiness of emergency response systems. Fastening the seatbelt firmly so that the FX market does not waver is just as important as expanding trading hours.
