The goal of shifting global demand from non-deliverable forwards to the Seoul-based deliverable market remains elusive as market participants prioritize ease of settlement. When South Korea announced its transition to a 24-hour foreign exchange market, the move was hailed as a definitive step toward the internationalization of the won, yet the transition has proven to be a complex narrative of structural friction and ingrained financial habits. For decades, the local market operated within a restricted window, forcing global investors into the offshore non-deliverable forward market to manage their currency needs. By extending the trading cycle from 6 a.m. Monday to 6 a.m. Saturday, the government sought to dismantle these barriers and reclaim its sovereign currency from the hands of offshore hubs. However, the reality of the first months of operation has revealed that infrastructure alone is not enough to change the direction of global capital flows. The disconnect between an open market and an active one remains the primary hurdle for Seoul.
Market Infrastructure and Overnight Realities
The Silent Dawn: Analyzing Overnight Activity
Analysis of recent trading sessions reveals a stark contrast between the ambitious 24-hour framework and actual market participation. During the newly added early morning segment between 2 a.m. and 9 a.m., transaction volumes accounted for a meager 2.3% of the total daily average of $18.18 billion. Specifically, the deepest overnight window from 2 a.m. to 6 a.m. saw only $363.33 million in trades, representing just 2% of the total activity. These figures suggest that the presence of an open market does not naturally induce global trading if local liquidity providers are absent. The 6 a.m. to 9 a.m. period proved even quieter, contributing a negligible 0.25% to the daily turnover. While the technology for round-the-clock trading is functioning as intended, the lack of a diverse participant base during these hours remains a major obstacle. Without significant volume, spreads widen, making it less attractive for international firms to execute large-scale currency conversions in the Seoul-based market.
The concentration of trading still heavily favors the traditional daytime hours, which dominate approximately 68% of all market activity. The evening session, overlapping with European and early American trading hours from 3:30 p.m. to 2 a.m., has shown more resilience, capturing nearly 30% of the daily volume. However, the drop-off after 2 a.m. is precipitous, highlighting a reliance on domestic institutional schedules rather than a truly globalized demand curve. This pattern suggests that international investors who need won outside of Korean business hours are still largely bypassing the domestic market in favor of more liquid offshore options. For the 24-hour initiative to be considered a success, there must be a significant migration of these trades into the local system. Currently, the market is experiencing a chicken-and-egg problem where low liquidity discourages new participants, and the lack of participants prevents liquidity from deepening. Overcoming this inertia requires a fundamental change in how both local and global entities approach transactions.
Holiday Dynamics: The Impact of Domestic Absence
The “weekday holiday” policy, which keeps the market open during Korean public holidays, has yet to yield the high level of engagement that officials had anticipated. During major breaks like the Chuseok festival or Constitution Day, average trading volumes stayed around 1.8% of typical daily averages. This lack of movement is directly tied to the absence of domestic corporations and banks, who serve as the primary engines of the local foreign exchange market. When these key players are offline, the market loses the critical mass required to sustain efficient trading for foreign participants. Even though global investors can technically access the market on these days, the lack of active counterparties often makes the cost of trading prohibitive. The policy was intended to provide a seamless experience for the international community, but it has highlighted how dependent the won remains on its domestic base. Without a significant shift in global demand that exists independently of the Korean business calendar, holiday trading will likely remain a quiet affair.
This trend suggests that the internationalization of the won is still in its early, experimental stages, where the structural foundation is being tested by existing market habits. For foreign entities, the appeal of a 24-hour market is diminished if they cannot find consistent pricing during their own active business hours or during local holidays. The current data reflects a market that is open in name but often dormant in practice during these non-traditional windows. To bridge this gap, there is a growing consensus that more than just open doors are needed to attract global capital. Market makers must be incentivized to provide tighter spreads and deeper liquidity even when domestic demand is low. Furthermore, the reliance on a few local institutions to drive the market suggests a need for a broader array of international banks to take up residence in the Seoul-based system. Until the market can demonstrate that it remains vibrant regardless of the local time or holiday schedule, it will struggle to capture the global volume currently flowing through offshore financial hubs.
Overcoming the Inertia of Offshore Dominance
Resistance to Change: The Persistence of Non-Deliverable Markets
The enduring preference for non-deliverable forwards (NDFs) remains one of the most formidable barriers to the domestic market’s growth. These offshore instruments allow participants to gain exposure to the won without the complexities of actual physical delivery, settling differences in U.S. dollars. This simplicity is highly attractive to global institutional investors who manage diverse portfolios and prioritize ease of settlement over local market depth. Many foreign entities find that the infrastructure of the offshore NDF market is more integrated with their existing global workflows, making the transition to the Seoul-based deliverable market seem like an unnecessary administrative burden. Even with the extension of hours, the convenience factor of NDFs continues to outweigh the potential benefits of trading in the local market. This persistence highlights the fact that liquidity and ease of use are the primary drivers of currency selection, rather than just the availability of trading windows. Shifting this demand requires the domestic market to offer competitive advantages.
Domestic corporations also contribute to the status quo, as many see little reason to engage in late-night or holiday trading when their core business activities are conducted during standard daytime hours. For these firms, the risks associated with trading in low-liquidity overnight windows often outweigh the benefits of managing currency exposure in real-time. This collective preference for established routines creates a network effect that reinforces the dominance of the daytime session and the offshore NDF market. To break this cycle, the Seoul-based market must demonstrate clear economic benefits, such as significantly lower transaction costs or better pricing than what is available offshore. Currently, the friction associated with the deliverable market—including regulatory reporting and local account requirements—serves as a deterrent. If the goal is to attract the high-frequency and large-scale trades that typically define a global currency hub, the domestic system must be as frictionless and cost-effective as the offshore alternatives that investors have relied on for decades.
Regulatory Strategies: Incentivizing Market Transition
In response to the slow start of the 24-hour initiative, the South Korean government began exploring more direct regulatory incentives to encourage the use of the deliverable market. One of the key strategies discussed involved offering reductions in foreign exchange soundness charges for financial institutions that actively participate in the domestic market. By providing a tangible financial reward, authorities hoped to lower the effective cost of trading and incentivize banks to provide liquidity during off-peak hours. These discussions marked a shift from purely structural changes to more tactical interventions designed to alter market behavior. The focus was on making the domestic market more economically viable for both local and foreign institutions, acknowledging that liquidity is a commodity that must be bought or earned. Such measures were intended to jumpstart activity in the overnight segments, creating the volume necessary to eventually attract organic global demand. However, the success of these incentives depended on whether they were substantial enough to overcome the entrenched advantages.
The path toward the full internationalization of the won required more than just extended trading hours; it demanded a comprehensive rethinking of market incentives and global outreach. Authorities eventually recognized that technical availability was only the first step and focused their efforts on integrating the domestic system into the global financial architecture more effectively. They implemented streamlined registration processes and enhanced technological interfaces to reduce the operational friction for international participants. Market makers were given clearer mandates and better support to maintain liquidity during the once-quiet early morning hours. Over time, these combined efforts started to show results as a broader range of global investors began to see the Seoul-based market as a viable primary venue. The shift from offshore NDFs to the domestic deliverable market became a gradual reality as the benefits of better pricing and regulatory support outweighed the old habits of convenience. By addressing the fundamental needs of global traders, South Korea moved closer to its vision of a truly globalized currency.
