As the won-dollar exchange rate fluctuated sharply due to the state of emergency, the government has ordered securities firms to increase their mandatory foreign currency deposits with the Korea Securities Finance Corporation. This measure comes at a time when overseas stock investments are rising due to the "Seohakgaemi" phenomenon, which refers to retail investors investing in foreign stocks. The mandatory foreign currency deposit system was introduced during the COVID-19 pandemic when concerns about foreign currency liquidity grew, and it has been strengthened for the first time in three years.

On the 11th, the Financial Services Commission approved a revision of the financial investment business regulations at its regular meeting.

Securities firms deposit the funds entrusted by investors with the Korea Securities Finance Corporation to enhance stability and operational efficiency. While all won deposits are fully deposited with the Korea Securities Finance Corporation, mandatory deposits for foreign currency were first introduced for the dollar in December 2021. Under the existing regulations, 70% of dollar investment funds were required to be deposited, but this will be expanded to 80%, and a new mandatory deposit for Japanese yen will be established, requiring 50% to be deposited. The implementation will start on the 19th.

Considering that the foreign currency deposits of the Korea Securities Finance Corporation are around 8 trillion won, with a significant proportion in dollars and yen, this measure is expected to secure additional deposits worth hundreds of billions of won.



Expansion of Securities Firms' Dollar Mandatory Deposits



A Financial Services Commission official stated, "The Korea Securities Finance Corporation plays a role in providing emergency support to securities firms in the event of a liquidity crisis," adding, "When deposits are concentrated in the Korea Securities Finance Corporation rather than being dispersed across individual banks, they can be utilized more efficiently for emergency support."

Given the ongoing trend of increasing investment in U.S. stocks among domestic investors, the effect of expanding the foreign currency deposit ratio is expected to grow. An official from the Korea Securities Finance Corporation explained, "Even if the mandatory deposit ratio remains the same, as the scale of foreign currency deposits increases, the amount of mandatory deposits will naturally increase as well."

According to the preliminary international investment position report for the third quarter of 2024 released by the Bank of Korea last month, the balance of domestic investors' overseas securities investments increased by 24.9% year-on-year as of the end of September.

Before this measure was announced, the Korea Securities Finance Corporation had already been expanding the scale of liquidity support for securities firms and improving the management of foreign currency deposits. Initially, the liquidity supply scale for securities firms, which was 26.5 trillion won, was increased by 4.2 trillion won to 30.7 trillion won. Additionally, plans are in place to diversify maturities and interest rates according to the needs of securities firms.

Furthermore, to enhance the yield of foreign currency deposits managed through foreign currency deposits, money market funds (MMFs), repurchase agreements (RPs), swaps, etc., the proportion of MMF and swap management will be increased. They are also in the process of including overseas government bonds and offshore deposits.

[Moon Jae-yong, Reporter]