'Benchmark Rate System' CD Yield → KOFR' Transition Speed... "Continuous Support for Activation"

[Financial News] Financial authorities are accelerating the transition of the benchmark rate system from the current CD rate, which is the standard for most financial transactions, to KOFR, the domestic risk-free benchmark rate.
The Financial Services Commission announced on the 25th through the 'Mid-term Review and Future Plans for Benchmark Rate Reform' that "from July 1, we will promote the conclusion of more than 10% of interest rate swap transactions with KOFR, and from October, we will launch central clearing services for KOFR interest rate swap transactions."
Last year, a public-private task force prepared a plan to increase the proportion of KOFR in the derivatives market by concluding more than 10% of interest rate swap transactions from July this year to June next year based on KOFR, and to increase that proportion by 10%p annually over the next five years.
The plan to expand KOFR interest rate swap transactions, which will be implemented from July 1, involves 28 financial companies (12 securities companies, 16 banks) with large interest rate swap transaction amounts, and the scope of participating financial companies will gradually expand each year. If the KOFR expansion plan is smoothly implemented, the proportion of KOFR in interest rate swap transactions is expected to increase from 10% to over 50% by 2030.
The Korea Exchange is developing a central clearing system for KOFR interest rate swap transactions with the goal of launching services in October to make it easier for market participants to engage in KOFR interest rate swap transactions. After a mock test in August-September, the clearing service is expected to be officially launched in October.
In addition, the public and private sectors have prepared a plan for policy financial institutions and the banking sector to procure more than 10% of their floating rate bond funding based on KOFR from this year. As a result of checking the issuance status of floating rate bonds from January to April, KOFR floating rate bonds were issued amounting to about 1.47 trillion won, thanks to regular quarterly issuances by policy financial institutions, and the proportion of KOFR issuance compared to total floating rate bonds reached 29.3%.
In particular, in May, a commercial bank issued KOFR floating rate bonds for the first time, and other commercial banks are also preparing to issue KOFR floating rate bonds within the second quarter, so the issuance of KOFR floating rate bonds in the private sector is also expected to gradually expand.
The government and related organizations of the Bank of Korea plan to continuously support and induce the activation of KOFR. The Financial Services Commission stated, "As KOFR-linked products such as derivatives and floating rate bonds gradually expand, practical issues related to issuance, trading, and investment may arise, so we will continue to check for any obstacles with a public-private task force.
We plan to discuss and address these issues."


nodelay@fnnews.com Park Ji-yeon Reporter