KOFEX, the new Korean Futures Exchange, opened for trading on 23 April.

Initial products are USD/KRW currency futures and options, KRW CD futures, and gold futures. It is planned to add new products as and when market interest develops.

The exchange is located in Pusan, some 200 miles south-east of Seoul, although all 11 of its members are in the capital. It is felt that due to the electronic nature of trading, the differing locations should not pose any problems. KOFEX is relying on state-of-the-art technology from the Options Market of Sweden to make the new exchange one of the most advanced in the world.

The commodity market in Korea is somewhat underdeveloped, and the decision to list commodities on the exchange is complicated by the need to fix a standard product and decide on a distribution network. Gold was chosen because there is a strong interest in it among the general public, and it was relatively easy to decide on a standard - a 99.99% kilo bar. The main participants in the market are:- Trading firms, which import gold ore and export it after reprocessing, and sell gold bars to wholesalers such as Samsung, Daewoo, LG and SK.-Wholesalers, which sell gold to retailers and jewellers- Black market retailers, which provide 60% of total gold demand- Others - industrial companies (e.g. electronics) and dental suppliers.

Unlike other countries, gold is classed as a general commodity in Korea, and the government imposes an import tax (3%) and a value-added tax (10%), contributing to the existence of an active black market. At present, members of the national assembly and other authorities are seekii1g to reduce or eliminate the taxes on gold.

Not only the direction but also the extent to which central banks lend their gold is not known with great precision ... it is important that some authority has oversight of the situation. I would propose that this role should fall to the BIS in Basle, and it would be an appropriate issue for the new Financial Stability Forum proposed at last month's G7 meeting. Central banks involved in the gold leasing and swaps markets should agree to make regular quarterly returns to the BIS of the amounts and maturities that they have outstanding to individual counterparties so that the size of, and exposures in the market can be accurately measured. As a further contribution to transparency, these central banks might be encouraged to include their gold lending in their balance sheets. The BIS itself is, of course, an active participant in the market and it would be essential that a strict system of Chinese walls was maintained between the operational area of the bank and the statistical functions - but they are well used to handling these matters in Basle.