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Korean Won Traders Brace for Volatility as Market Hours Lengthen - BLOOMBERG
, Bloomberg News
, Bloomberg
(Bloomberg) -- The South Korean won’s extended trading hours will give investors more flexibility about when to deal, but they also come with at least one potential downside: the threat of greater volatility.
The longer hours for trading, implemented Monday as part of the nation’s push to gets its stocks and bonds included in more global indexes, open up the prospect of far greater swings. That’s because the session will extend past midnight when fewer traders will be online to provide liquidity.
“We are nervous,” said Moon Junghiu, an economist at KB Kookmin Bank in Seoul. “Trading volume is likely to decrease during extended hours. We will continue to monitor and watch the market rather than actively trade.”
The new trading hours for the currency and foreign-exchange swaps are from 9 a.m. local time to 2 a.m. the following day, replacing the previous span from 9 a.m. until 3:30 p.m. the same day. The initiative is a step toward allowing investors to deal in the currency around the clock.
Many of the country’s major banks plan to start, or have already installed, night shifts to accommodate the new hours, while some larger players are looking to relocate a number of staff to London and New York.
Bid-offer spreads were largely contained during a pilot period of the extended trading hours that took place earlier this month, but liquidity dropped from 10 p.m. local time.
The nation’s currency authorities have vowed to intervene and take timely market-stabilizing measures in case of excessive price swings. Local banks and financial companies have also been urged to actively participate in trading the onshore won when the hours are extended.
While there’s a risk volatility spikes during periods of low liquidity, it’s likely to be short lived, said Young Sik Jeong, executive director of Korea Institute for International Economic Policy. “Systemic changes will take time to settle in. The ship may be rocked, but it won’t capsize.”
The won slipped 0.3% Monday to 1,380.55 per dollar. The currency has weakened 6.6% this year.
--With assistance from Hooyeon Kim.
(Updates prices in ninth paragraph)
