KSD Begins Calculation and Disclosure of Korea Risk-Free Rate Index

[Asia Economy Reporter Lee Seon-ae] The Korea Securities Depository (KSD) announced on the 26th the commencement of the "Korea Risk-Free Reference Rate (KOFR) calculation and disclosure operations" and held an event to celebrate the successful launch of the calculation and disclosure system.

The event was attended by over 60 officials from the Financial Services Commission, Bank of Korea, Financial Supervisory Service, related organizations, and financial companies who have been promoting benchmark interest rate reform tasks such as the development of the Risk-Free Reference Rate (RFR) since the launch of the "Benchmark Interest Rate Improvement Task Force" in June 2019.

The Risk-Free Reference Rate (RFR) is a theoretical interest rate expected from risk-free investments, corresponding to the average funding cost excluding credit and liquidity risks.

The Benchmark Interest Rate Improvement Task Force was jointly launched by the Financial Services Commission and the Bank of Korea, carrying out reform tasks including △alternative benchmark development △institutional improvements △market establishment and △response to LIBOR discontinuation.

According to the Financial Transaction Benchmark Act, the Financial Services Commission designated the Korea Risk-Free Reference Rate as an important benchmark on September 29, and designated KSD as the calculation agency for the important benchmark on November 24.

To ensure the reliability and transparency of the calculation and disclosure operations, KSD established the Important Benchmark Management Committee, an independent organization composed of top experts in related fields. The Important Benchmark Management Committee oversees the entire calculation and disclosure operations with independence and responsibility.

The commencement of the Korea Risk-Free Reference Rate calculation and disclosure operations aligns with the international benchmark interest rate reform trend pursuing the development of risk-free reference rates based on actual transactions rather than quotes, following the LIBOR cartel scandal in 2012.

KSD expects that the Korea Risk-Free Reference Rate will be used as a benchmark interest rate for new contract signings such as interest rate swaps and floating rate notes (FRNs), and can also be used as a fallback rate in emergencies such as the discontinuation or reliability decline of CD rates.

A KSD official stated, "We will do our best to ensure that the Korea Risk-Free Reference Rate (KOFR), which has started calculation and disclosure, develops into a representative benchmark interest rate of our country, with this commemorative event as a starting point."

This content was produced with the assistance of AI translation services.