Gold exchange to help regularize shadow economy: KRX

By Kang Yoon-seung

SEOUL, July 25 (Yonhap) -- South Korea's bourse operator said Thursday it will make efforts to establish an easily accessible gold exchange market in line with the government's move to regularize the underground economy.

"The new gold exchange market system will be similar to the existing stock market," the Korea Exchange (KRX) said in a statement. "It is anticipated to add to the government's tax revenue by regularizing underground gold-trading."

The remark came after the Financial Services Commission (FSC), South Korea's top financial regulator, said Monday it will begin amending rules needed to set up a spot gold exchange from September.

The FSC added it will approve the KRX and the Korea Securities Depository to be in charge of management.

Local financial authorities' move to establish the spot gold exchange market came as gold has been one of the preferred methods by wealthy South Koreans to hoard illegitimate assets and evade taxes.

"If the trading of gold, which has been at the center of the underground economy, is regularized, the government will see an increase in its tax revenue," the KRX added.

Market watchers said the government is anticipated to rake in 300 billion won (US$268.6 million) in additional tax income from the new market.

In order to make the market easily accessible by retail investors, the KRX said it aims to establish a trading system similar to the main bourse and the secondary KOSDAQ market.

Investors will be allowed to make investments between 9:30 a.m. and 3 p.m., with the trading volume of a transaction standing at below 10 grams. The KRX, however, added that investors will only be able to withdraw gold bars in kilogram units, which will be inscribed with a KRX mark.

The bourse operator said it will set up a so-called good delivery list to manage authorized producers of gold products to be traded on the market to ensure their quality.

The KRX also plans to provide real-time market prices along with other global indexes related to gold.

Local securities firms as well as banks and other gold dealers are allowed to apply to win approvals to participate in the market from the KRX. Retail investors will be able to make transactions through such institutions.

The KRX also said it will set up a task force with the Korea Financial Investment Association to make various financial instruments linked to the envisioned market to bolster the new exchange.

The bourse operator said the new market is anticipated to lend support to the government's move to regularize the so-called shadow economy, or underground economy.

The underground economy refers to either unregulated or undetected business activities which are blamed for providing a channel for many to evade paying taxes.

President Park Geun-hye has been keeping a close eye on the unregulated economy as a tool to raise tax revenue and deliver on her campaign promises.

A local think tank estimated that South Korea's underground economy has grown to around 290 trillion won last year, equivalent to 23 percent of the country's nominal gross domestic product.

The new spot gold exchange will also add to the government's "creative economy" vision, which aims to create new business opportunities, industries and jobs through the fusion of information and communication technology, culture and other realms, the KRX added.

Earlier this month, the Korea New Exchange (KONEX) market was also officially launched by the KRX to foster the growth of young venture firms and lend support to the government's vision of creative economy.

The KRX said it will exempt commission rates on investors for the time being to support the settlement of the new market.

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