South Korea to make it easier for foreign funds to trade stocks

[SEOUL] South Korea will start testing a system to make it easier for overseas investors to trade local stocks as part of efforts to be included in MSCI Inc's developed-market equity indexes.

A single account, called an omnibus, for foreigners buying and selling Korean equities will be tested in a simulation from Wednesday through September, the Financial Services Commission said in a statement.

Four offshore banks, two brokerages and a global investment firm will participate in tests and the aim is to officially start the system in 2017, the regulator said in the statement.

MSCI's annual review of its stock indexes will be released next month and an upgrade to developed from emerging-market status would open the door for a larger pool of global funds to invest in South Korean assets. The country's existing foreign investor identification system, which requires offshore money managers to trade shares through a separate account for each of their funds, has been a hurdle for Korea's inclusion in developed-nation share gauges.

MSCI chairman Henry Fernandez said in January that improvements to the foreign investors' registration system and data accessibility for derivatives products, as well as making the won available for trading around the clock, were prerequisites for any upgrade of South Korea.

The nation is unlikely to be included in MSCI's developed-market index this year, the Korea Economic Daily reported last week, without saying where it got the information.

Massive outflows are expected from Korean markets if China's A shares are added to MSCI's Emerging Markets Index, Kim Yong Gu, an analyst at Hana Financial Investment in Seoul, wrote in a May 17 research note. The only way for Korea to avoid the outflows is to be included in the developed-nation gauge, he said.

After the omnibus accounts are introduced next year, their use may be extended to bonds and other securities, the Financial Services Commission said in the statement. Korea Exchange said in February that it will allow offshore investors to use overseas brokers to access the country's derivatives market.

The bourse is also seeking to extend trading times for stocks by 30 minutes.

BLOOMBERG