Reform fails to solve collateral woes in Korea

Korean swaps users wary of collateral reuse, leaving dealers with LCR burden

Bank of Korea restrictions on won payments mean VM regime relies on bonds

New rules intended to enable the reuse of pledged collateral in South Korea are yet to make an impact, leaving swaps dealers with a liquidity ratio headache.

Since September last year, participants in Korea’s derivatives market have been required to exchange variation margin on non-cleared trades, but bonds posted by local swaps users cannot be rehypothecated by their dealer counterparties, leaving them with a liquidity gap to cover.

“Rehypothecation of Korean treasury bonds hasn’t taken into

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