Korean horizons: Discover the potential of the newest asset class on the Collateral Highway
11 June 2024
Euroclear has forged a partnership with Korea Securities Depository, introducing Korean treasury bonds and monetary stabilisation bonds to its Collateral Highway. Marije Verhelst, head of business development, collateral management and securities lending provides insights into this development
Image: stock.adobe/eyetronic
Can you elaborate on the collaboration between Euroclear and KSD that led to the inclusion of Korean bonds on the Collateral Highway?
Following a clear demand from our clients, Euroclear has closely collaborated with the Korea Securities Depository (KSD) and the Ministry of Finance and Economy in South Korea. This partnership aimed to overcome several barriers, making Korean government bonds Euroclearable and eligible on our triparty platform. Recent legislative changes in South Korea, particularly the tax exemptions for foreign investors, have been instrumental in this process. Additionally, these changes have allowed international central securities depositories (ICSDs) to open omnibus accounts at KSD.
How do these legislative changes impact foreign investor participation in the Korean debt market?
The tax exemption for foreign investors has paved the way for increased participation in the Korean debt market. It enhances the attractiveness of Korean government bonds to global investors by reducing tax-related barriers. This move aligns with our objective to support clients in executing their APAC collateral strategies, thereby broadening the investment opportunities available on our platform.
Can you explain how Euroclear’s Collateral Highway supports the integration of
Korean securities?
Euroclear’s Collateral Highway is designed to offer efficient, reliable, and easy collateral management. We ensured that from day one of our new link with the KSD our clients could integrate Korean securities with their existing collateral assets in our triparty service. This integration is essential for facilitating various collateral transaction types, including repo transactions and securities lending, using KTBs and monetary stabilisation bonds (MSBs) against all Euroclear-eligible currencies except the Korean won (KRW).
What potential do you see in Korean securities, and how does it compare to other APAC assets?
We have observed strong interest from our global offshore clients in leveraging the potential of Korean assets. In recent years, Japanese government bonds have emerged as one of the fastest growing asset classes on the Collateral Highway. We believe Korean securities hold similar potential due to their growing market liquidity and attractiveness to international investors.
What steps has Euroclear taken to support collateral players in meeting regulatory requirements?
We have partnered with KSD to significantly reduce the compliance burden inherent to the requirements of a beneficial owner market. Non-Korean resident collateral takers in Euroclear’s Collateral Highway are exempt from specific certification or reporting requirements, simplifying the process. Euroclear has obtained QFI approval, taking on the burden of beneficial owner reporting for our collateral givers posting collateral from an account with a single beneficial owner. This ensures compliance and eases the integration of Korean assets into clients’ collateral management strategies.
How does Euroclear ensure the validity and security of pledges involving Korean assets?
Euroclear has received comfort regarding the validity of such pledges under South Korean law, allowing clients to pledge their Korean assets through Euroclear.
Besides triparty collateral management services, what other services will Euroclear offer for Korean assets?
In addition to triparty collateral management, we will support bilateral business such as repo as well as normal trading activity between foreign entities, settling against any currency, except for KRW. This service follows standard settlement requirements, which allows clients to utilise Korean assets effectively across different transaction types and structures.
How do you envision the future of Korean bonds on Euroclear’s platform?
We are optimistic about the future of Korean bonds on our platform. The collaboration with KSD and the favourable regulatory environment position Korean securities as a valuable addition to our Collateral Highway. As we continue to support the market’s growth, we aim to provide a seamless, efficient, and secure infrastructure for international investors to access and utilise Korean government bonds.
The strategic collaboration between Euroclear and KSD, along with supportive regulatory changes, mark a significant milestone in expanding the global reach and attractiveness of Korean securities. This partnership not only enhances market liquidity but also opens new horizons for investors on Euroclear’s Collateral Highway.
Following a clear demand from our clients, Euroclear has closely collaborated with the Korea Securities Depository (KSD) and the Ministry of Finance and Economy in South Korea. This partnership aimed to overcome several barriers, making Korean government bonds Euroclearable and eligible on our triparty platform. Recent legislative changes in South Korea, particularly the tax exemptions for foreign investors, have been instrumental in this process. Additionally, these changes have allowed international central securities depositories (ICSDs) to open omnibus accounts at KSD.
How do these legislative changes impact foreign investor participation in the Korean debt market?
The tax exemption for foreign investors has paved the way for increased participation in the Korean debt market. It enhances the attractiveness of Korean government bonds to global investors by reducing tax-related barriers. This move aligns with our objective to support clients in executing their APAC collateral strategies, thereby broadening the investment opportunities available on our platform.
Can you explain how Euroclear’s Collateral Highway supports the integration of
Korean securities?
Euroclear’s Collateral Highway is designed to offer efficient, reliable, and easy collateral management. We ensured that from day one of our new link with the KSD our clients could integrate Korean securities with their existing collateral assets in our triparty service. This integration is essential for facilitating various collateral transaction types, including repo transactions and securities lending, using KTBs and monetary stabilisation bonds (MSBs) against all Euroclear-eligible currencies except the Korean won (KRW).
What potential do you see in Korean securities, and how does it compare to other APAC assets?
We have observed strong interest from our global offshore clients in leveraging the potential of Korean assets. In recent years, Japanese government bonds have emerged as one of the fastest growing asset classes on the Collateral Highway. We believe Korean securities hold similar potential due to their growing market liquidity and attractiveness to international investors.
What steps has Euroclear taken to support collateral players in meeting regulatory requirements?
We have partnered with KSD to significantly reduce the compliance burden inherent to the requirements of a beneficial owner market. Non-Korean resident collateral takers in Euroclear’s Collateral Highway are exempt from specific certification or reporting requirements, simplifying the process. Euroclear has obtained QFI approval, taking on the burden of beneficial owner reporting for our collateral givers posting collateral from an account with a single beneficial owner. This ensures compliance and eases the integration of Korean assets into clients’ collateral management strategies.
How does Euroclear ensure the validity and security of pledges involving Korean assets?
Euroclear has received comfort regarding the validity of such pledges under South Korean law, allowing clients to pledge their Korean assets through Euroclear.
Besides triparty collateral management services, what other services will Euroclear offer for Korean assets?
In addition to triparty collateral management, we will support bilateral business such as repo as well as normal trading activity between foreign entities, settling against any currency, except for KRW. This service follows standard settlement requirements, which allows clients to utilise Korean assets effectively across different transaction types and structures.
How do you envision the future of Korean bonds on Euroclear’s platform?
We are optimistic about the future of Korean bonds on our platform. The collaboration with KSD and the favourable regulatory environment position Korean securities as a valuable addition to our Collateral Highway. As we continue to support the market’s growth, we aim to provide a seamless, efficient, and secure infrastructure for international investors to access and utilise Korean government bonds.
The strategic collaboration between Euroclear and KSD, along with supportive regulatory changes, mark a significant milestone in expanding the global reach and attractiveness of Korean securities. This partnership not only enhances market liquidity but also opens new horizons for investors on Euroclear’s Collateral Highway.
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