Government to inspect forex market for speculative trading, manipulation this week

The government will conduct on-site inspections this week to check for speculative trading and market-disrupting activity in the foreign exchange market, vowing a firm response to any transactions that fuel one-sided moves in the won's exchange rate or undermine market order.

Moon Ji-seong, director general for international economic affairs at the Ministry of Economy and Finance, convened a foreign exchange market expert roundtable Tuesday at the Government Seoul Complex, bringing together specialists in foreign exchange, securities and macroeconomics.

The roundtable was a follow-up to an emergency market stability review held Sunday. Attendees included Lee Seong-hee, deputy president of KB Kookmin Bank; Seo Eun-jong, head of BNP Paribas Bank's Seoul branch; Lee Sang-ho, head of HSBC Securities' Seoul branch; and Park Seok-gil, economist at JPMorgan Bank's Seoul branch.

Moon said preparations were underway to inspect the foreign exchange market for speculative trading and market-disrupting conduct, adding that relevant authorities would carry out on-site checks and inspections shortly.

"The government recognizes the current market situation with the utmost seriousness and is closely monitoring market trends and key transaction flows in tight coordination with relevant agencies," Moon said. "We will respond firmly to speculative trading and market-disrupting activity that undermines market order or encourages one-sided moves in the exchange rate."

Participants said that, taking into account overall supply and demand conditions in the foreign exchange market, the current one-sided trend in the won was likely to be temporary.

They assessed South Korea's economic fundamentals as solid, citing the upward revision to first-quarter GDP growth, a sustained current account surplus and the activation of the National Pension Service's new framework. They also forecast that volatility in the foreign exchange market would ease going forward.

Moon also heard expert views on the benefits and drawbacks of offshore non-deliverable forwards. Participants discussed ways to absorb foreign investors' NDF demand within the domestic foreign exchange market — leveraging the 24-hour market opening and the offshore won settlement system — and to enhance the competitiveness and efficiency of the domestic market.

"The responsible role of market participants is critical to the stable operation of the foreign exchange market and the establishment of sound trading order," Moon said, urging each institution to strengthen internal controls and risk management to prevent speculative trading or any conduct that could undermine market order.