South Korea's Seoul Foreign Exchange Market will replace its current Market Average Rate (MAR) methodology with a Time Weighted Average Price (TWAP) system for calculating the USD-KRW base exchange rate from January 1, 2027. The transition follows the market's shift to 24-hour trading operations on July 6 this year. The current MAR system calculates rates by volume-weighting transactions between 9am and 3:30pm, while the new TWAP method will average exchange rates within 5-minute windows around each hour, with the 4pm TWAP serving as the next business day's base rate. Banks use the base exchange rate as a reference point for customer foreign currency transactions, import-export settlements, foreign asset valuations, and accounting procedures.
Seoul FX Market Uses Volume-Weighted MAR for Current Base Rate Calculation
The current MAR is calculated by volume-weighting all USD-KRW transactions executed between 9am and 3:30pm in the Seoul Foreign Exchange Market. The MAR calculated on a given day becomes the base exchange rate announced and applied on the next business day. Banks add or subtract spreads (foreign exchange commission fees) to this base rate when setting customer-facing exchange rates.
Seoul FX Market Implemented 24-Hour Trading on July 6
The Seoul Foreign Exchange Market transitioned to a 24-hour, five-day-per-week trading system on July 6 this year. This operational change necessitated modifications to the exchange rate calculation methodology to accommodate continuous trading activity outside the previous 9am-3:30pm window.
TWAP System Replaces MAR from January 1, 2027
From January 1, 2027, the 4pm TWAP will replace MAR as the base exchange rate. TWAP is calculated by averaging USD-KRW spot exchange rates executed within a 5-minute range around each hourly mark, based on specific extraction criteria. Unlike MAR, which reflects trading volume, TWAP averages rates around specific time points. Under the 24-hour trading system, TWAP will be calculated every hour from 6am to 6am the next day, with the 4pm TWAP designated as the base rate for the following business day.
Public Holiday Rates Apply Two-Day Prior Calculation
On public holidays, no exchange rate is announced even if the Seoul Foreign Exchange Market operates. In such cases, the base exchange rate calculated two days before the holiday and announced on the immediately preceding business day applies. This principle will continue after the TWAP system implementation in 2027.
FAQ
What is the difference between MAR and TWAP for USD-KRW exchange rates?
MAR (Market Average Rate) calculates the base rate by volume-weighting all transactions between 9am and 3:30pm, while TWAP (Time Weighted Average Price) averages exchange rates within 5-minute windows around each hourly mark. MAR reflects trading volume distribution, whereas TWAP focuses on rates at specific time points.
When will South Korea start using TWAP for the USD-KRW base exchange rate?
The TWAP system will replace the current MAR methodology from January 1, 2027. The 4pm TWAP calculated each day will serve as the base exchange rate for the next business day.
How are exchange rates determined on public holidays in South Korea?
On public holidays, the base exchange rate calculated two days before the holiday and announced on the immediately preceding business day applies, even if the Seoul Foreign Exchange Market operates. This rule will remain in effect after the 2027 TWAP implementation.
