On the Transparency Improvement Policies and Liquidity in Korea Bond Markets

Jeong, Hee Joon

Korean Journal of Financial Studies 2011;40(3):501-524.
Published online June 30, 2011.

Hee Joon Jeong

한국 채권시장의 투명성 제고정책과 유동성에 관하여

정희준

Abstract

It is generally accepted that higher transparency in the bond markets increases the information efficiency and credibility of the investors in the markets. For this purpose, the several policies have been implemented since the IMF financial crisis in Korea. Among them, compulsory transaction for indicator treasury bond in the exchange from October 2002 to July 2008 was the most representative policy. This policy has been evaluated to improve the efficiency of the Korea bond markets. However, this study suggests that the improved efficiency has been achieved on the sacrifice of the liquidy of the markets in terms of trading volume. There may be some reasons. First, the auction trading system in the exchange would be inadequate for the participants in Korea bond markets that were composed of a little number of institutional investors. Second, the role of PDs was not sufficient for efficient operation of the market because the PD system at that time in Korea was still in its infancy stage. These results may suggests policy dilemma between the transparency and liquidity. But transparency in not a goal but a means, so transparency in the securities markets needs to be pursued in optimal level based on an individual market situation rather than maximum level.

Key Words: 유동성,장외거래,지표채권 장내거래,채권시장,투명성,Exchange Bond Market,Indicator Treasury Bond,Liquidity,OTC Trading,Transparency Promotion Policies