(Bloomberg) -- South Korea is planning measures to boost after-hours liquidity in the won, after this week’s political crisis triggered a surge in volatility in the currency.
When South Korean President Yoon Suk Yeol late Tuesday night shocked the country by briefly imposing martial law, the gap between bid and offer prices in the spot market widened to as much as 16 won and remained elevated through the night, according to data compiled by Bloomberg. That compared to about 2.5 won for the non-deliverable forward market, another venue for betting on Korea’s currency.
Liquidity has tended to fall during late night hours, and given the shock, some impact was probably inevitable, said Kim Hee Jae, director of the finance ministry’s currency market division.
“Apart from that, we’ve been mulling measures to boost liquidity at night, and plan on announcing them within this year,” Kim said in a phone call, without providing further details.
Keeping liquidity alive during late-night hours for the Korean won has been a top agenda item for authorities since trading hours for the currency were extended in July. That’s to make the won easier to trade and facilitate the inclusion of Korean stocks and bonds in global indexes.
Hours were extended to 2 a.m. from 3:30 p.m. from July 1, and local banks have implemented night shifts as part of the new regime. At the time, authorities pledged to intervene to curb any volatility and the Bank of Korea was quick to calm markets this week with promises of unlimited liquidity if required.
Swift Crisis Response by Korea Limits Market Impact of Tumult
After news of the crisis broke, foreigners continued to actively trade in the forward market, according to five traders, who asked not to be named as they are not authorized to speak publicly. The spot market followed moves in NDFs, they said.
One said they were told by their manager to refrain from trading and adjust positions accordingly as the uncertainty grew. Still, some local brokerages that normally don’t trade at night were spotted in the market too, the traders said.
How Six Hours of Martial Law Reshaped a Stunned South Korea
On Tuesday night in Seoul, the won dropped close to 3%, sending some local traders rushing back to their offices.
“I came across the news at around 10:40 p.m. and arrived back in the office after that,” said Kim Yule, a currency trader at Shinhan Bank, who was joined by two colleagues to help with the night shift.
“Normally, one person is enough to manage overnight trading,” but on Tuesday, “trading volume was at least two to three times bigger than usual, and so was the number of calls from clients,” Kim said.
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