Korea Exchange "Opening 3-Month Risk-Free Rate Futures Market on 28th Next Month"

[Asia Economy Reporter Minji Lee] The Korea Exchange announced on the 16th that it will open a 3-month risk-free rate (RFR) futures market on the 28th of next month. This is a follow-up measure to the "Risk-Free Rate Selection Results and Activation Plan" announced by the Financial Services Commission last year.

The risk-free rate refers to an interest rate based on actual transactions that excludes credit risk. The 3-month risk-free rate futures are products that are cash-settled on the final settlement date at the average rate of the Korea Risk-Free Rate (KOFR), which is published daily by the Korea Securities Depository as a one-day rate, averaged over the three months immediately preceding the futures maturity. To this end, the business regulations were revised last November, and after a notice period for the revision, detailed rules were amended today.

Risk-free rate futures products are being developed as representative products of the short-term interest rate market, listed in major advanced countries. The Financial Stability Board, an international organization, has been promoting improvements to benchmark rates since the 2012 LIBOR (London Interbank Offered Rate) manipulation incident and the decline in unsecured interbank funding transactions. To this end, major derivatives exchanges in various countries have listed 1-month and 3-month futures related to RFRs calculated based on actual transactions. Korea has also selected "government bonds and monetary stabilization bonds RP rates" as risk-free rates and has been promoting the listing of RFR futures.

The Korea Exchange expects that futures trading will promote the market establishment of KOFR and increase market awareness of KOFR. It also predicts that it will improve the market's risk management efficiency for short-term interest rates such as call rates, repurchase agreement (RP) rates, certificate of deposit (CD) rates, and short-term government bonds.

The company stated, "When the risk-free rate futures market is activated, it will become easier to issue KOFR-based floating rate notes (FRNs) and develop loan products," adding, "Since the duration (weighted average maturity of bond cash flows during the period) is similar to existing hedging instruments such as government bond futures, it is expected to have a higher hedging effect against short-term interest rate fluctuation risks."

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