South Korea to Combine Foreign Fund Trading Accounts Next Year

  • Omnibus account to help ease share transactions for foreigners
  • South Korea seeks status of developed nation in MSCI indexes

South Korea plans to introduce a single trading account for foreign funds from next year as it bolsters efforts to get its stocks included in MSCI Inc.’s developed-country indexes.

The Financial Services Commission will amend rules and oversee an overhaul of electronic trading systems in April as it prepares for the change, the regulator said in a statement. The so-called omnibus account, which will replace an unpopular rule that currently requires offshore money managers to trade shares through a separate account for each of their funds, will be introduced on a trial basis from May, the FSC said.

Once the new rules take effect, brokerage firms will need to send over their transaction records to the Financial Supervisory Service, which will monitor them for foreign capital flows, according to the statement.

The simplified rules follow outflows of as much as $4.9 billion from South Korean shares over the past twelve months, the most among Asian markets tracked by Bloomberg. When South Korea was taken off MSCI’s shortlist of candidates for the status of a developed nation in 2014, the index provider cited the “cumbersome” identification system and absence of improvement in won trading hours as the two main reasons.

Recognition as a developed nation is coveted as it could open the door to a larger pool of global funds and potentially lower volatility associated with emerging-market assets.

“The omnibus account will resolve most of the inconveniences that foreign investors experienced so far under the current identification system,” Kim Young Sung, analyst at Daewoo Securities Co., said by phone last week, before the FSC announcement. Introduction of the omnibus account takes South Korean shares “one step further” towards inclusion in the MSCI developed-market indexes, Kim said.

The benchmark Kospi index has fallen 2.5 percent this month, erasing last year’s 2.4 percent advance, on outflows amid turbulence in global markets and the prospect of a weaker yuan spurring competitive devaluations in the region.

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