KSD "Promoting Overseas RFR Financial Transactions... Driving Activation of Domestic Financial Transactions"

[Asia Economy Reporter Minji Lee] The Korea Securities Depository announced on the 4th its intention to support the well-established market adoption of the Korea Overnight Financing Rate (KOFR), a risk-free reference rate (RFR) that is experiencing rapid growth in the derivatives market.

RFRs have been developed by major countries such as the United States and the United Kingdom as transaction-based risk-free reference rates to replace the LIBOR rate. Following the 2012 'LIBOR manipulation scandal,' the LIBOR rate, which was widely used in international derivatives trading, has been gradually discontinued since this year, prompting major countries to create alternative reference rates.

Currently, major countries have completed the development of RFRs and are promoting the activation of RFR financial transactions. Influenced by the adoption of the RFR First Initiative (guidelines to promote the transition to RFR benchmark rates in derivatives trading), the RFR derivatives market is rapidly growing. In January, the futures trading volume of the US and UK RFR futures markets increased approximately 10-fold and 6-fold respectively compared to the same month last year. The UK, Swiss, and Japanese swap markets have completed the transition to RFRs, and the US and Euro markets are also showing steep growth.

Domestically, the 'KOFR calculation and disclosure operations' began on November 26 last year, and the Korea Exchange will open the 'KOFR futures market' on the 28th. Banks and asset management companies are reviewing the issuance of KOFR floating rate notes (FRNs) and the launch of exchange-traded fund (ETF) products, raising expectations for the activation of the RFR market in Korea.

However, to activate the KOFR market, institutional arrangements such as establishing market conventions on the KOFR average interest calculation method and preparing a KOFR user manual are expected to be necessary. The Korea Securities Depository stated, “We plan to actively support institutional improvements and reforms to ensure KOFR is established in the market through benchmarking overseas cases, consultations with KOFR user institutions, joint research with academia, and seminars.”

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