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The Bank of Korea on Tuesday assigned 31 financial institutions to trade securities for foreign exchange and monetary stability on its behalf for a year from Aug. 1 and revised auctioning system for monetary stabilization bonds to trigger more competitive activity in the short-dated sovereign debt curve.

The 31 consigned for open market operations include 18 banking institutions such as KB Kookmin Bank, Shinhan Bank, Woori Bank, and KEB Hana Bank, and 13 non-banking institutions such as Mirae Asset Daewoo, Samsung Securities, and Shinyoung Securities.

The BOK carries out open market operations to maintain stability in the financial market by supplying or withdrawing money through bond sale. It is a main monetary policy instrument to influence money circulation and interest rates.

Among institutions, 20 have been selected for monetary stabilization bond trading and securities transactions, 22 for repurchase agreement trading, and 9 for stock purchasing loan.

The BOK said that the financial institutions were selected based on their cooperativeness in the central bank’s monetary policy implementation, offering of market information, historical records of monetary stabilization bonds, and repurchase agreement sales. The central bank will control efficient and smooth liquidity based on transactions with the financial institutions, it said.

The BOK, meanwhile, has decided to improve its policy related to the issuance of MSBs to promote more competition in trading the short-term bonds.

MSBs used control short-tem liquidity is dated from 14 days to 546 days.

MSB trade beaks down to two groups. All institutions can take part in the first group that involves interest rate bidding while outstanding institutions that belong to top 30 percent bracket in terms of earnings can take part in the second group that involves price bidding.

Under new policy, the BOK has decided to expand target institutions for the first group from the current 40 percent to 60 percent while reduce that of the second group from 60 percent to 40 percent. It will also ban poor institutions whose bidding price is 2 percent or lower compared to competitive bidding issue amount from participating in the first group.

The new policy system will be applied to correspondent financial institutions for open market operations starting August 1.

An unnamed BOK official said that it expects more correspondent institutions to take part in competitive bids for monetary stabilization bonds.

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