Developing the exchange traded market for government bonds: Effect of recent quote rule changes in South Korea

The 2010 new quote rule changes imposed on the exchange market primary dealers (PDs) for the Korea Treasury Bonds (KTBs) have increased the exchange market quality for the 5-, 10- and 20-year maturity KTBs. Knock-on effects have subsequently led to an increase in market quality for the 5- and 10-year maturity bonds in the over-the-counter (OTC) KTB market. However, the imposition of a spread width below a reasonable level in the KTB exchange traded market for the 3-year maturity KTB has led to a significant reduction in trade volume in the OTC KTB market for bonds of the same maturity.