Buying the same bond through different routes in Korea changes what it costs you. The "OTC bond" screen in a brokerage app is a dealer sale — the broker sells inventory it already holds — and it carries no trading commission. Buying the same paper on the Korea Exchange's general bond market instead costs 0.1% to 0.3% of the transaction amount, depending on remaining maturity. But OTC quotes are never published; you see a single rate the broker offers. So the question worth asking is not which fee is lower, but how many basis points that fee is actually worth.
Same bond, two different markets
Exchange-traded bonds change hands through competitive bidding among many participants. Trading runs 09:00 to 15:30 on weekdays, the minimum trading unit is 1,000 won of face value, quotes move in 0.1-won steps, and settlement is same-day. OTC bonds skip the exchange entirely: the broker and the customer trade bilaterally, also in 1,000-won face value units, and settlement is immediate on execution. More than 80% of Korean bond trading happens off-exchange, which is why the list a retail investor sees in an app is mostly dealer inventory.
| Item | Exchange-traded | OTC |
|---|---|---|
| Execution | Competitive bidding on KRX | Bilateral with the broker |
| Commission | 0.1-0.3% by maturity | None (built into the quoted rate) |
| Quote disclosure | Public, 0.1-won tick | Not disclosed; broker's rate only |
| Trading unit | 1,000 won face value | 1,000 won face value |
| Hours | 09:00-15:30 weekdays | Broker business hours |
| Universe | Listed issues only | Broker's current inventory only |
Both routes limit what you can buy, but the limit works differently. On the exchange, listing decides the menu; OTC, whether that particular broker happens to hold the paper today. The same corporate bond routinely appears at one brokerage and not another.
What is a 0.3% commission worth in yield?
The exchange commission is paid once. A yield gap compounds for every year you hold. To compare them, divide the fee by the years remaining. Using Meritz Securities' published schedule for won-denominated bonds — 0.1% under one year, 0.2% under two years, 0.3% at two years or more, and 0.6% for small-lot government bonds under 50 million won of face value — on a 10 million won purchase:
| Remaining maturity | Commission (%) | Fee per 10M won (KRW) | Break-even yield gap (%p/yr) |
|---|---|---|---|
| 6 months | 0.1 | 10,000 | 0.20 |
| 1 year 6 months | 0.2 | 20,000 | 0.13 |
| 3 years | 0.3 | 30,000 | 0.10 |
| 5 years | 0.3 | 30,000 | 0.06 |
| 10 years | 0.3 | 30,000 | 0.03 |
| 3 years (small-lot govt) | 0.6 | 60,000 | 0.20 |
The break-even gap is simply the commission divided by years to maturity. On a three-year bond, an OTC quote only has to be 0.10 percentage points below the exchange yield to leave you exactly where a commissioned exchange purchase would. The longer the maturity, the lower that bar falls — at ten years, a 0.03%p difference is enough to favor the exchange. At the short and small end, by contrast, you get a thick 0.20%p cushion. These figures are simple-interest approximations and ignore taxes and reinvestment.
That is also where the structural weakness of OTC shows. There is no way for a retail buyer to see how much margin sits inside the quoted rate. With no published quotes, the question "is the spread thinner than 0.10%p?" has no verifiable answer. If the same issue is listed, putting the two screens side by side is the only check available.
The commission is paid once; the yield gap runs to maturity — the longer the bond, the less a "free" commission is worth.
Taxes are identical either way
The purchase route does not change the tax. For an individual holding bonds directly, coupon interest is withheld at 15.4% including local income tax, while capital gains on the bond itself are not an enumerated income under Korea's income tax law and go untaxed. That holds on the exchange and off it alike. Unlike equities, selling a bond incurs no securities transaction tax.
This is why low-coupon bonds bought at a discount can win on an after-tax basis: for the same pre-tax yield, the smaller the interest share, the smaller the taxable amount. One caveat — once interest and dividend income together exceed 20 million won a year, the excess is pulled into comprehensive taxation, so a portfolio with maturities clustered in one year may need its coupon dates spread out. A related calculation appears in the piece separating coupon rate from effective yield on individual treasury bonds.
Retail money is already flowing off-exchange
Per the Korea Financial Investment Association's OTC bond market report, individuals bought a net 3.19 trillion won of bonds in August 2026, of which 1.37 trillion won was government paper. Cumulative net buying for the year reached 22.96 trillion won. Foreign investors moved the other way that month, selling a net 839 billion won, and the 30-year Korean treasury yield touched an all-time high of 4.751% intraday.
The inflow itself is visible in the statistics; the prices those individuals paid are not. A high OTC share means a large part of retail buying is executed against quotes nobody else can see.
What to watch
- Check first whether the same issue is listed — it is the only case where you can compare the two quoted rates
- Divide the commission by years remaining to get the break-even yield gap (about 0.10%p on a three-year bond)
- Watch for the small-lot government bond band, where the exchange commission jumps to 0.6%
- Read the coupon rate alongside the purchase price — only coupon interest is taxed
- Track whether annual interest and dividends approach 20 million won, and whether maturities bunch into a single year