On January 30, 2025, the South Korean Ministry of Economy and Finance and the Bank of Korea announced the selection of seven banks as the leading institutions for the Won-Dollar foreign exchange market for the year 2025. The chosen banks are Kookmin Bank, NongHyup Bank, Industrial Bank of Korea, Shinhan Bank, Woori Bank, Hana Bank, and Korea Standard Chartered Bank. This selection process also marked the exclusion of previous leaders JP Morgan Chase and Credit Agricole.
This year's changes bring notable additions, with NongHyup Bank and Korea Standard Chartered Bank newly entering the ranks of leading banks. The selection criteria prioritize banks demonstrating sound financial stability and creditworthiness, alongside significant performance metrics within the spot and swap markets.
Under the new guidelines, selected banks will benefit from reductions of up to 60% on the foreign exchange stability burden fee, which is aimed at fostering stability and participation within the foreign exchange markets. Notably, the selection process evaluates banks based on their trading performance over the past year, applying weights to recognize transactions completed during specific hours.
From 6 PM to 10 PM, trades are weighted double compared to trades conducted between 9 AM and 6 PM. Even more incentivizing is the triple weight applied to trades finalized between 10 PM and 2 AM, encouraging banks to engage actively during after-hours trading.
The foreign exchange authorities have emphasized the importance of these leading banks' active participation, especially during extended trading hours, contributing to both the breadth and depth of South Korea's currency markets.
The modifications to the criteria for selection came after the implementation of the foreign exchange market structural improvement plan last July. The authorities reported an 8.6% increase year-on-year in average daily trading volume from July to December 2024 alone and noted even more impressive growth when compared to the five-year average, with rates soaring by 36%.
Efforts to refine the criteria for selected banks are underway, including adjustments to the system governing the deduction of the foreign exchange stability burden fees. Starting from 2026, these deductions will be based not on bidirectional trading performance but on market-making trading activity. This change will allow the deduction limits to be expanded from over 10% to over 15% of the taxable amounts imparting extra benefits and incentives to the selected banks.
With the recent developments surrounding the criteria and practices for selecting the leading banks, both the Ministry of Economy and Finance and the Bank of Korea remain committed to promoting adequate levels of liquidity well across the market, particularly emphasizing the pivotal role these banks play.
The policies instituted are expected to serve as catalysts, inciting stronger transactions and active market-making roles from the selected institutions. The continued push for improvement and restructuring aims not only at bolstering performance but also at enhancing the overall functionality of South Korea's foreign exchange markets.