Korean banks to share info on FX derivatives

The move by the Financial Supervisory Service (FSS) and the Korea Federation of Banks came as the won hit a 10-year low against the greenback that pushed some exporters to the brink of bankruptcy due to losses on oversized derivatives positions.

The purpose of the information sharing between banks is aimed at preventing exporters from conducting derivatives trades with multiple dealers that ultimately leave them with outsized positions compared with their underlying exposures, said a senior derivatives specialist at the FSS in Seoul.

Under the existing banking regulations in South Korea, a trader would be considered to have 'over-hedged' if he bought hedging instruments in excess of the value of his export orders. Without such a database it would be difficult for one bank to know if its client had secured additional hedges with another bank.

"With pre-approval from the client, a bank would post the derivatives position of the client on the database," the FSS official said. But the bank would not post its own name, to prevent competitors getting too much information about each other's clients, he adds.

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