he Korea Exchange (KRX) will be the focus of the government’s strategy to make Korea a top financial hub in Northeast Asia, the KRX said in its strategy to globalize its operations made public recently. The KRX will export its infrastructure to Asian countries to expand its influence in Asia and to form a base for the overseas operations of Korean securities firms.

   The IT system will also be exported, which would increase income for KRX as well as diversify its revenues. The KRX also sees the competition for securities exchanges stiffen from the second half of 2012, spurring M&As among major global securities markets.

NYSE-Euronext and the German securities exchange went for a merger, but failed due to the objection of the EU financial regulatory authorities. Meanwhile, the Nasdaq-OMX has been attempting a hostile takeover of NYSE-Euronext. The London Stock Exchange and Canada’s TMX have been talking M&A, although it is not clear when it will be finalized.

The globalization of the KRX will spur Korea to be a central financial hub in Northeast Asia, expanding Korea’s influence among countries in the Asian region and acting as a bridge for Korean businesses to expand their operations in the Asia region. It will also help prepare for Korea’s capital market and boost Korea’s position at the same time.

The Current Status of Globalization by Sector - Exports of IT System

The IT system is a main infrastructure of a stock market and Korea’s IT system is the equivalent of the export of a Korean-type stock market. As a kind of installation business, it needs system and suitability and generates the continuous need for repair and maintenance after the installation. Currently, two major IT system makers dominate the IT systems in all the stock exchanges around the world. NYSE-Euronext and Nasdaq-OMX are the two largest stock exchanges in the world, while the stock exchanges in Korea, Japan, Spain, Turkey, and Brazil, among others, have developed their own IT systems and are not getting their systems from the two major makers.

The Results of IT System Exports

Korea’s IT systems for stock markets were exported to Malaysia through an international bidding for bond sales and auditing systems in May 2006, beating nine bidders including two stock markets in Asian countries, successfully getting through the technology evaluations and other procedures, beating Tata of India and other superior global IT firms. In January 2007, the final contract was signed and the IT systems were delivered to the owner in January 2008.

At the request of the Malaysian Bursa, satisfied with the development of its IT system for its stock market by the Korean supplier, the KRX received a second order for project development in April 2008.

Following the Malaysian orders, in October 2009 the KRX got an order from the Vietnamese stock exchange for next generation systems and an order from CMIC, an affiliate of the Philippines Stock Exchange, for the auditing of the stock market to develop and build a stock market auditing system.

The Malaysian stock exchange project involves the development of systems for bond sales and an auditing system, which went into operation in March 2008, and the second bond ETP development, which went online in April 2009.

The Islam product sales system went online in August 2009, while the derivative product payment settlement system went online in April 2012.

The Vietnamese Stock Exchange Next Generation System Project was up for bidding in May 2008 and the KRX passed the first technological qualification evaluation and won the final project order in October 2009. In 2011, the KRX finalized the specifications for the IT systems at the Ho Chi Minh City Stock Exchange, the Hanoi Stock Exchange, and the Vietnam Depository Institute. 

In May 2012, conditions and dates for a detailed agreement are being negotiated for the Philippine project. The KRX completed the agreement for the Philippine stock market auditing system and completed the development and delivered the system on May 8, 2012, which is now being test-run, along with repairs and maintenance work.

Other countries being targeted include Azerbaijan, Thailand, Morocco, Peru, Kazakhstan, and Panama, among others, for exports of the IT systems.

Through the attendance of the ASEA International Conference in December 2011 and support from its 22 member countries, the KRX has made a bridgehead to export the IT systems to those countries, boosting its international recognition.

Marketing Strategy for Emerging Market Countries

The KRX has been urging the countries that don’t have stock markets yet to set one up, promising all kinds of support by taking advantage of its experience in supporting Vietnam in its setup and operations of its stock markets during 1996 and 2000. By successfully exporting the KRX-style stock market abroad, the KRX has helped the overseas operations of Korean financial firms and, at the same time, exports of the IT equipment by setting up the base. The KRX also aims to build a finance network in Asia through its joint ventures in stock exchanges and joint operations of those stock exchanges in line with the government strategy to make Korea a strong financial hub in Northeast Asia. Emerging markets in Asia have been growing five times greater than all other OECD member countries, except for Korea, Japan, Australia, and Singapore, and 2.6 times the world economy on average. The new foreign investments in those countries have been 2.5 times greater than the OECD average and three times that of the world average.

The population of emerging nations make up 45 percent of the world’s total population, and the rate of increase in their population is three times that of OECD nations and twice the average of the world. The demands for SOC projects, energy, and housing construction have been rising so fast that it has led to a rapid increase in financing needs.

Overseas operations of Korean businesses have spread throughout the emerging countries of Asia due to similar cultural traditions.

The Establishment and Operation of the Stock Exchange in Cambodia

Under the agreement between the governments of Korea and Cambodia signed in May 2006, the KRX finished the training of expert personnel to run the stock exchanges and the provision of counseling on setting up a stock exchange between April 2007 and March 2009, which was covered by the KOICA funds operated by the government. The manpower training went on for two years, eight times per year with 175 Cambodian personnel invited to Korea, 55 trained in Cambodia by 55 Korean professionals, for a total of 1,771 Cambodian personnel receiving training.

In March 2009, the Finance Ministry of Cambodia and the KRX signed an agreement on the establishment of the stock exchange in Cambodia and its joint management. The agreement gave Cambodia a 55 percent share of the exchange through providing land and buildings, while KRX received 45 percent for providing the IT systems. The stock exchange opened on April 18 this year, the third one on which the KRX collaborated following those in Vietnam and Laos.

The KRX signed an MOU with the Laotian Central Bank (LCB) in July 2009 under which the LCB will hold a 51 percent stake in the stock exchange to be jointly set up by providing land and buildings, while the KRX will hold a 49 percent share by providing the IT systems and the education of staff.

The KRX also participated in the modernization of the stock market in Uzbekistan under an MOU signed with the Uzbek National Asset Committee, involving the formation of an expert committee to advance the central Asian nation’s capital market. In August 2011, the KRX signed an agreement to develop the IT systems to modernize the country’s stock exchange. The KRX will be given a stake in the stock market for its provision of the IT systems for the stock exchange, whose details are being worked out.

The KRX also signed an MOU to act as a consultant to the modernization of Kazakhstan’s stock exchange in August 2011, which will lead to the formation of an expert committee to deal with the work. The KRX will provide consultations on the stock market by system and the improvement of the IT systems at the stock exchange.

In January, the KRX signed an MOU to provide consultations on the modernization of the Nepalese stock exchange under which the KRX will talk with the Nepalese government and stock exchange on details of the project and provide the IT system for the stock exchange within this year.

The KRX will continue to export the Korean-type stock exchange to foreign countries, especially emerging nations, to strengthen Korea’s financial operations base overseas through cooperative tie-ups and partnerships providing consultations on stock market operations and the training of experts to run the stock markets. KRX will continue to provide help to those stock exchanges through upgrading, repair, and maintenance to continue to maintain leverage on those stock exchanges.

The KRX will provide support to countries with no stock exchanges and with less developed ones, especially in emerging countries in Southeast and Central Asia.