Bonds and notes issued in the Korean bond market may be traded OTC or on the exchange. Similar to other bond markets, the OTC market represents the dominant volume of bond and note trading. However, in the Republic of Korea, bond trading on the Korea Exchange (KRX) has maintained a significant portion of overall trading, accounting for 40% of the overall trading volume in 2016.
1. Trading in the OTC market
The OTC market is administered by KOFIA (Korea Financial Investment Association) and populated by institutional investors only. The OTC market is, in effect, divided in the normal OTC market and the QIB market, which only trades QIB market-eligible securities.
Participants in the OTC market trade using the K-Bond trading platform and other trading tools. Almost all OTC trading in the Korean bond market is conducted on K-Bond, where trading is made by negotiation among the market participants.
The bonds traded on K-Bond are mostly publicly offered bonds and notes listed on the exchange, such as government bonds, special bonds, and large-issue sized corporate bonds.
2. Trading on Korea Exchange
Investors can also trade bonds on KRX, in one of its four market segments. Bonds traded on KRX should meet certain requirements for listing that KRX imposes; key among them is the requirement to have been issued via a public offering.
Bond trading is carried out through the electronic trading system in the KRX bond market (KRX KTB). The electronic trading system collects all quotations and displays them on trading screens in real time; trades are executed electronically. The KRX KTB offers straight-through processing from quotation searching to trade execution to downstream functions like clearing and settlement. KRX also acts as central counterparty for each trade.
KRX KTB is not limited to exchange members and is populated by institutional participants, such as banks and investment companies, and include the Primary Dealers.
|KRX KTB||OTC market|
|Method of Tradling||Competitive Bidding (Dealer-KRX-Dealer)||Negotiated Trading (Institution-Broker-Institution)|
|Means of Trading||Electronic system||K-Bond, phone|
|Method of Ask Price||Ask price (along with yield)||Ask yield (along with price)|
|Trading Unit||1 billion won||Usually 5 billion won, 10 billion won No limits on trading unit|
|Trading Hours||09:00 ~ 15:30||Usually 08:30 to 16:30|
|Date of Settlement||T+1||Usually T+1 Within 30 days (T+30)|
|Method of Settlement||Real-time net settlement(comparatively smaller settlement amount)||Gross settlement(comparatively larger settlement amount)|