South Korea's financial regulator said Monday that it will tighten regulation on market-related financial products such as money market fund (MMF).

According to the Financial Services Commission (FSC), the ceilings on maturity, duration and credit ratings for assets that are included in the money market financial products will be shortened and tightened further in a bid to reduce liquidity risks stemming from the potential demand for massive redemption.

Duration for MMF-included assets will be shortened from the current 90 days. "Duration ceiling is relatively long compared with advanced nations. The ceiling will be shortened to, for example, 60 days from the current 90 days," Kim Yong-beom, director general of the FSC's capital market bureau, told reporters.

Domestic MMFs will be required to include a certain percentage of liquid assets, for example 30 percent of assets that mature in 7 days and 10 percent of assets with a one-day maturity, in a bid to manage the possible liquidity risk in times of market tension.

A MMF refers to an open-ended mutual fund that invest in short- dated debt securities such as short-term government bonds, monetary stabilization bonds, commercial paper (CP) and certificate of deposits (CD).

Meanwhile, regulation for money market trust (MMT) and money market wrap (MMW) will be heightened to the level of the one for MMF.

Assets included in the MMT and MMW will be required to have a certain level of the credit ratings such as the two-highest ratings, and will be subject to the ceilings of maturity, for example the assets that mature within 3 months.

The MMT and MMW are a trust and a wrap account each that invest in short-term debt securities such as government bonds, monetary stabilization bonds, CP and CD.

The FSC said that it planned to revise the related act to tighten regulation on the money market financial products next month, and implement the revised rule from July 2013 after a grace period. Endi