[발췌] Republic of Korea: Selected Issues (IMF, 2008)

출처: International Monetary Fund (2008). Republic of Korea: Selected Issues (IMF Country Report No. 08/296). September 2008.
자료: 구글도서, ... ; 메모 및 주요 차례

※ 용례: funding liquidity vs. (market) trading liquidity.

※ 발췌 (excerpts from): IV. Lessons and Policy Recommendations from the Financial Crisis  (p. 48)

* * *

D. Lessons for Korea's OTC Financial Markets  (p. 53)

85. As noted, another lesson from the financial crisis is that some OTC markets have weak market structures. The most serious consequence was the loss of market trading liquidity in some securities and derivatives markets. It not only prevented investors from adjusting their positions, but also hampered proper asset valuations by eliminating the use of liquid market prices for marking to market.

86. In response, the international financial policy organizations have made the following recommendations:

• Establishment of an OTC registry or depository to record OTC trade confirmations and to make prompt public reports of market prices so as to improve the efficiency of price discovery and dissemination.
• Establishment of a clearing house or similar facility to handle post-trade infrastructure including prompt trade confirmation, resolution of trade errors, and settlement.
• Improvement of counterparty risk management through high standard and more efficient practice for the use of collateral for derivatives and lending transactions.

87. A key concern in Korea is that rapid financial sector reforms stemming from the CMCA will lead to expansive growth in financial transactions conducted in nontransparent OTC markets. The reforms will likely result in more financial transactions occurring in market beyond the reach of Korea's current regulatory framework. In addition to gaps in reporting requirements, there are no prudential regulations governing the use of collateral to reduce and otherwise manage counterpary credit risks in derivative trades.

88. In order to mitigate these problems, an OTC registry can reduce operational risk and improving pricing. By requiring market participants to report OTC transactions to a designated registry, it can improve operational risk by reducing post-trade uncertainty and other costs. As an example, the regulatory framework in Brazil has established such requirements, and the function of the registry is provided by two institutions, the BM&F exchange and the CETIP depository.[n.38] In the OTC market for corporate bonds and municipal bonds in the United States participants are required to report within 15 minutes to a public access facility for posting prices.[n.39] A registry can provide greater market transparency for competitive pricing during normal times, and help to mark-to-market less liquid securities during tumultuous times. Accounting and reporting requirements also improve with the enhanced availability of market prices.

89. Korea's OTC markets for bonds already satisfy some of the recommendations.[n.40] The bond market is regulated by the Korea Securities Dealers Association (KSDA), a self-regulatory organization. Trading in government bonds, corporate bonds and ABS are covered under the current KSDA rules, which require that all OTC bond and ABS transactions be reported within 15 minutes, to a central OTC registry and the information is then made available to the public. Korea's Bond Quotation System also improves pre-trade transparency in the bond market by offering a centralized quotation system. However it is not required of other OTC securities or derivatives transactions.

90. Korea's OTC securities and derivatives markets would be further improved by market-wide price reporting requirements the use of a clearing house to reduce counterparty risk, and the establishment of minimum standards for the use of collateral in derivatives transactions. Korea's price reporting requirement, which is already applies to corporate bond transactions, should be extended to dealers and other market participants in OTC derivatives and other OTC securities markets in order to strengthen the structure of those markets and help to ensure liquidity. The use of a clearing house and the establishment of collateral standards would also enhance liquidity by allowing a larger number of firms to participate in the market. Towards this ends, Korean authorities might be encouraged by recent success by the NYFRB to convince major OTC derivatives dealers to undertake a voluntary commitment to meet similar requirements.[n.41]

91. Alternatively, securities and derivatives are traded on the Korean Exchange (KRX) and this public market provides an even higher standard of transparency and trading liquidity for the price discovery process. The IFPO recognized that exchanges did not suffer the disruptions and trading illiquidity costs that befell many OTC markets. This is an important lesson to financial authorities, and the KRX offers a high standard for price transparency, efficient procedures for trade confirmation and clearing, and improved opportunities for market surveillance by financial system supervisors. Korean authorities have encouraged more government securities trading to occur on the exchange, and such efforts could be expanded to include other securities and derivatives instruments.

92. Korea lacks designated market makers in some OTC markets. Although not explicitly spelled out as a recommendation, OTC markets sometimes need designated dealers to serve as market makers to maintain liquidity. The role of the market maker is more costly when volatility rises, and OTC market have recently experienced dealers withdrawing from markets. This is an important issue because Korea's reliance on OTC trading for trading for bonds, structured securities and derivatives contracts. One potential policy measure to help prevent this is a requirement for dealers to maintain a liquid and orderly market by posting binding bid and offer prices throughout the trading day. Indeed, the KRX has designated dealers on the exchange, and the 20 designated primary dealers in government securities are also obliged to maintain price quotes on benchmark issuances. In a comparable manner, designated OTC foreign exchange dealers in Chile are required to act as market makers, Brazilian authorities have proposed market making requirements for OTC dealers, and primarily [? primary] dealers in the OTC markets for U.S. Treasury securities are required to act as market makers.

E. Dealing with Liquidity Risk (p. 55)

93. The credit crunch in the interbank markets was one key way in which subprime mortgage problems grew into a financial crisis. It resulted from heightened counterparty risk and a surge in the demand for interbank borrowing to fund assets being brought back onto banks' balance sheets. In this context, the following recommendations have been made by the IFPOs:

• Higher regulatory standards for liquidity risk management,[n.42]
• Greater regulatory incentives to maintain an adequate liquidity cushion and other contingent provisions,
• Improved internal controls and risk management.

94. The current international financial framework does not fully address the need to provision for funding liquidity. Requirements for cash in hand and deposits with the central bank were designed to meet the threat of a loss of confidence by depositors. However, the liquidity problem that has recently emerged pertains to threats from disruption of wholesale funding markets. These include not only interbank markets, but also wholesale markets for money market instruments such as asset backed commercial paper and auction rate securities. Another source of recent liquidity problems stems from off-balance contingent obligations to provide liquidity to affiliated but often unconsolidated entities such as SIVs and conduits.

95. Korean banks face liquidity funding risks by operating with a high loan-to-deposit ratio. The prudential regulatory framework currently maintains higher than usual standards for bank liquidity, requiring minimum proportions of liquid assets over a specified short-term time horizons (7, 30 and 90 days). While the measures have proven adequate to address issues of depositors confidence, they may not be adequate to address risks from wholesale market disruptions that can strike at the roll-over dates of three month to one year maturities. This issue is accentuated by the increased reliance of funding from asset management companies who fund banks through certificate of deposits (CD) instruments and intermediate term notes.[n.43] Foreign currency borrowing from wholesale markets faces similar liquidity risks.[n.44]

96. Recent disruptions in foreign currency funding at Korean banks illustrated the vulnerability to liquidity risk. In November-December 2007, major money center banks in the United States were faced with a serious credit crunch. As a result, Korean banks experienced difficulties in rolling over foreign currency loans in the wholesale interbank market and switched to the foreign exchange swap market for U.S. dollar credit. Korean banks were successful in using these derivatives instruments as a substitute to fund their dollar asset and derivatives, but the shift led to a reduction in transparency (financial statements became less representative of underlying activities) and it also reduced regulatory capital requirements for equivalent economic activity.[n.45]

(The end of the subsection E.)

...