Euroclear to trade S.Korean treasuries via omnibus account from June

The National Tax Service (NTS) of South Korea said on Tuesday that Euroclear Bank SA/NV and Clearstream Banking S.A., two major clearing houses for securities traded in Europe, will trade Korean treasuries for foreigners via their omnibus accounts at Korea Securities Depository (KSD) from June.

NTS said on March 26 that it has approved Brussels-based Euroclear as a qualified foreign financial institution (QFI) in efforts to increase foreigners’ transactions of Korean government bonds.

The tax authorities’ decision follows its approval of Luxembourg-based Clearstream as a QFI in March 2023.   

A QFI is an overseas financial services firm that handles complicated tasks on behalf of foreign investors. The tasks include foreign investors’ identity verification and tax exemptions on their interest and capital gains.

An international central securities depository (ICSD), such as Euroclear and Clearstream, should be entitled as a QFI to trade foreign investors’ Korean treasuries via an omnibus account at KSD.

“The omnibus account for Korean Treasuries will simplify foreigners’ investment and tax exemption procedures and enable offshore over-the-counter transactions between foreign investors. We expect this system to greatly increase foreigners’ interest in Korean government bonds,” said an NTS official.

In January 2023, Korea introduced tax exemption on interest and capital gains for foreigners investing in Korean treasuries. The tax exemption will be available via the European clearing houses' omnibus accounts at KSD from June.

“The NTS will activate foreigners’ Korean treasury bond investment channels by setting up guidelines for QFI operations and launching the omnibus account system. We will also proactively support Korea’s inclusion in the FTSE World Government Bond Index (WGBI),” said an NTS official.

Write to Kyung-Min Kang at kkm1026@hankyung.com

Jihyun Kim edited this article.