There are two ways for investors to trade on the secondary market, through the Korea Exchange (KRX) or over-the-counter (OTC).

For KRX trading, bonds must be listed. Bonds are traded via block trading or in large size orders. This means that if bond sellers cannot find investors in the listed exchange, they can contact institutional investors listed in the exchange to buy their bonds. The KRX operates under the order-driven system where bonds are quoted on a yield basis. Investors pay a commission for brokerage services, generally about 0.01 % of the traded volume.

The OTC market has both listed and unlisted bonds that can be traded between retail investors and securities firms or between financial institutions. OTC trading prices are negotiated between buyers and sellers.

For both KRX and OTC trading, bond orders are done on a cash settlement basis, where the buyer or seller deposits payment with securities firms by 5pm local time each trading day.

Interest payments and final settlement are made through fund transfers from the Bank of Korea to the customer’s bank accounts and securities firms using the BOK-Wire system.