Korea Exchange Bank Approves All Banks and Securities Firms for RP Trading... Providing Liquidity

Korea Exchange Bank has decided to provide liquidity to the market through the purchase of repurchase agreements (RPs) under non-standard trading conditions until February next year. The target RPs will be expanded to include public institutions and special bonds, and the purchase institutions will be increased to all banks and securities firms. This measure is aimed at alleviating market instability following the previous announcement of non-performing loans.

Korea Exchange Bank held a temporary financial policy committee meeting at its headquarters in Jung-gu, Seoul on the morning of the 4th and made this decision. Korea Exchange Bank explained, "We have expanded the target securities and institutions for RP trading to ensure that the provision of liquidity can proceed smoothly." They will implement RP purchases as needed, and will also conduct sufficient scale purchases of government bonds, simple purchases, and exchange stabilization bonds related to the bond market.

RP purchases are a tool for providing liquidity by using the bonds held by financial institutions as collateral, which Korea Exchange Bank buys. The targets for purchase include government bonds, government-guaranteed bonds, and other eligible securities designated by the Financial Services Commission. Korea Exchange Bank has expanded the targets for this temporary financial policy to include industrial finance bonds, small and medium enterprise finance bonds, export-import finance bonds, special bonds issued by nine public institutions, agricultural finance bonds, fisheries finance bonds, and financial bonds under the Banking Act.

The target institutions for RP trading have also been increased. Korea Exchange Bank has approved all domestic banks and foreign branches, all securities firms, and investment companies as eligible institutions for RP trading. RP trading can only be conducted by institutions designated by the Financial Services Commission, but with this decision, the target institutions have been greatly expanded.

Korea Exchange Bank stated, "To manage the credit risk of Korea Exchange Bank, 'self-issued bonds and related company-issued bonds' are excluded from the target securities for RP trading, and measures will be taken to ensure that the credit risk of newly added target securities does not place an excessive burden on Korea Exchange Bank."

This measure will be implemented temporarily from today until February 28 next year. Korea Exchange Bank stated, "Even after the resolution of non-performing loans, if the volatility of the financial market remains unstable, we will actively implement measures to open all possibilities and stabilize the market."

Reporter Kang Jin-kyu josep@hankyung.com