Bank of China Seoul Branch applied to South Korean financial authorities on the previous day for a financial investment business license to trade government bonds. The application seeks investment trading authorization (excluding underwriting) for government bonds, local bonds, and special bonds, targeting professional investors only. The move responds to increased foreign investor demand for Korean government bonds following the country's inclusion in the World Government Bond Index (WGBI), while also addressing trading needs amid rising interest rates after the Bank of Korea raised its base rate to 2.75% this month. Under South Korea's capital markets law, banks can obtain concurrent financial investment trading licenses specifically for government bond trading.
Bank of China Seoul Branch Requests License for Government Bond Trading
According to the financial investment industry on the 22nd, Bank of China Seoul Branch submitted an application on the previous day to modify its financial investment business license units. The branch requested investment trading authorization under the Capital Markets Act, excluding underwriting operations. The scope of financial investment products covers government bonds, local bonds, and special bonds, with investor eligibility restricted to professional investors only.
Previous Derivatives Licenses Obtained in 2014 and 2016
Bank of China Seoul Branch previously obtained an investment trading license for exchange-traded derivatives based on currency as the underlying asset in 2016. Prior to that, in 2014, the branch acquired licenses for trading and brokering over-the-counter derivatives based on currency and interest rates. The current application adds government bond dealing operations to these existing authorizations.
While the branch could previously trade bonds under banking law, such activities were limited to bond management aligned with deposit funding or liquidity management purposes. The necessity for bond trading expanded following WGBI inclusion, with increased short-term trading and customer-facing government bond sales creating the need for a financial investment trading license.
Regulatory Framework Permits Concurrent Banking and Trading Licenses
According to financial authorities, banks can obtain financial investment trading qualifications in a concurrent format when applying for licenses limited to government bonds. A financial regulatory official stated, "With (government bonds) being included in WGBI and bond trading increasing, the branch additionally applied for a government bond trading license. The purpose is to supply government bonds to asset managers and institutional investors tracking WGBI."
The official explained that obtaining the financial investment license is expected to activate Bank of China's government bond trading. With rising interest rates increasing loss risks in bond investment portfolios, the license provides greater capacity to respond proactively. The Bank of Korea raised its base rate from 2.50% to 2.75% by 25 basis points this month, marking the first rate increase in 3 years and 6 months since January 2023.
An industry official from the financial investment sector noted, "The financial investment trading license is authorization that enables short-term trading and trading book operations. The branch significantly increased its bond book last year, and this appears to also serve the purpose of responding proactively to interest rate volatility."
Bond Holdings Increased Over KRW 4 Trillion Last Year
Bank of China Seoul Branch substantially expanded its bond holdings last year. According to financial statements disclosed by the branch, other comprehensive income-fair value bonds at the end of last year increased by over KRW 4 trillion year-over-year, including KRW 2.1 trillion in government bonds. Amortized cost measurement bonds also grew approximately 74%, from KRW 3.7 trillion in the previous year to KRW 6.4 trillion.
FAQ
What type of license did Bank of China Seoul Branch apply for on the previous day?
Bank of China Seoul Branch applied for a financial investment business license specifically for investment trading operations (excluding underwriting) covering government bonds, local bonds, and special bonds, with eligibility limited to professional investors.
Why did Bank of China Seoul Branch need a new trading license for government bonds?
The branch needed the license because Korea's inclusion in the World Government Bond Index (WGBI) increased foreign investor demand for Korean government bonds, requiring expanded trading capabilities beyond the deposit-aligned bond management previously permitted under banking law. Additionally, the Bank of Korea's interest rate increase to 2.75% this month created greater need for active trading to manage interest rate volatility in the branch's bond portfolio.
