Académique Documents
Professionnel Documents
Culture Documents
Financial
Investment
Services
and
2012. 12.
Table of Contents
1
I. Development of Financial Services and Markets
1
1. Introduction
1
2. Early Stage of Modernization (1953-1967)
2
3. Development of the Capital Market(1968-1978)
5
4. Market Liberalization (1979-1985)
11
5. Expansion of the Capital Market (1986-1995)
15
6. The Asian Financial Crisis and Reform Measures (1996-2003) 22
7. Enhanced Competitiveness of the Capital Market (2004-2011)
28
31
III. Financial Regulatory Organizations
39
1. History
39
2. The Financial Services Commission and the Securities and
Futures Commission
40
3. Financial Supervisory Services
43
4. Self-Regulatory Organizations
44
- iv -
Chapter
Framework
of
Financial
Investment
47
47
50
1. Comprehensive Approach
50
2. Function-based Regulation
52
3. Expanded Scope of Financial Investment Businesses
56
4. Increased Investor Protection
57
58
1. Overview
58
2. Regulation of the Financial Investment Businesses
60
3. Regulation of Securities Issuance and Disclosure
61
63
- v -
I.
Introduction
of
the
New
Definition
of
Financial
Investment Products..................................................................63
1. Definition of Financial Investment Products
63
2. Classification of Financial Investment Products
67
68
1. Definition of Securities
68
2. Classification of Securities
69
71
1. Definition of Derivatives
71
2. Classification of Derivatives
72
73
75
I. Classification of Financial Investment Services
75
II. Entry Regulation
76
III. Regulation of Market Conduct
80
1. Generally
80
2. Regulations on Investment Recommendations
84
3. Preventing Conflicts of Interest
88
- vi -
98
1. Public Disclosure Obligations under the CC
98
2. Public Disclosure Obligations under the FSCMA
99
100
1. Generally
101
2. Registration Statement
104
3. Prospectus
105
4. Measures for Effective Public Disclosure Regulation
105
105
1. Generally
110
2. Periodic Disclosure
111
3. Timely Disclosure
113
4. Fair Disclosure
116
5. Voluntary Disclosure
116
6. Special Disclosure
116
7. Submittal of disclosure.................................................................................125
Chapter 6
Unfair Trading:
Statements,
Market
Insider Dealing,
Manipulation,
Unjust
Misleading
Trading
and
Unfair Practices
127
I. Overview
127
II. Prohibition of Insider Trading
128
- vii -
132
IV. Unjust Trading and Other Types of Unfair Trading
136
139
I. Overview
139
II. Strengthening Investor Protection in OTC Derivative
Trading
144
III. Strengthening Internal Controls in the OTC Derivative
Business
145
IV. Advance Review of OTC Derivative Products
147
147
151
I. Basic Definition of Fund as Collective Investment
Scheme and Other Fund-related Definitions
151
154
III. Legislative History of Funds and Regulatory Changes
under FSCMA
157
IV. Classification of Funds
158
- viii -
V. AUM by Fund
162
Chapter
Financial
Infrastructure:
Market,
Clearing
167
I. Market: Korea Exchange (KRX)
167
I. Overview
167
2. Businesses
169
172
1. Payment and Settlement Systems Overview..........................172
2. Main Payment and Settlement Systems.....................................176
180
1. Korea Securities Depository.....................................................180
189
I. The Effects Test
189
II. Regulation of Cross Border Dealing/Brokerage
189
III.
Regulation
of
Cross
Border
Investment
Advisory
191
- ix -
[Table]
1. TRADE IN GOVERNMENT BONDS
4
2. NATION-BUILDING GOVERNMENT BONDS TRADING BY TRANSACTION
TYPE
6
5. PUBLIC OFFERING OF STOCKS AND CORPORATE BONDS
7
6. GROWTH OF INVESTMENT TRUST FUNDS
8
7. SECURITIES SAVINGS
10
9. GROWTH OF THE SECURITIES MARKET
11
10. CAPITAL MARKET GLOBALIZATION PLAN
13
TREND
LIBERALIZATION
OF
FOREIGN
INVESTMENT
AFTER
18
COMPLETE
MARKET
19
21
24
56
TYPES
BUSINESSES
AND
CONCEPTIONS
68
OF
FINANCIAL
INVESTMENT
75
- x -
76
19.
122
128
118
22. FSC's POLICY AENDA REGARDING THE OTC DERIVATIVE MARKETS
23. CLASSIFICATION FUNDS BY INVESTMENT ASSETS
24. AUM BY UNIT TRUST AND MUTUAL FUNDS
131
145
149
150
26. AUM BY FUNDS INVESTMENT ASSET TYPE
151
26. AUM AND TOTAL NET ASSETS OF DOMESTIC INVESTMENT FUNDS AND
OVERSEAS INVESTMENT FUNDS
152
[chart]
1. ORGANIZATION OF THE FSC
40
42
[Figure]
1. CLASSIFICATION OF FINANCIAL INVESTMENT PRODUCTS UNDER
FSCMA
51
54
3. CLASSIFICATION OF FINANCIAL INVESTMENT INSTRUMENTS
4. DISCLOSURE PROCESS
5.
METHOD
OF
66
96
DETERMINING
- xi -
ON
PUBLIC
OFFERING/PRIVATE
PLACEMENT
99
131
147
`164
169
172
[Reference]
- xii -
Chapter 1
History
and
Development
of
Financial
Market
Regulation
1. Introduction
bonds.
In
1953,
the
Korea
Securities
Dealers
of
- 1 -
development
among
the
banking,
insurance
and
securities sectors.
- 2 -
- 3 -
Stock
Year
Government Bonds
Total
Amount
Proportion
Amount
Proportion
Amount
Proportion
1956
3,942
56.8
2,994
43.2
6,936
100.0
1957
4,140
17.1
20,007
82.9
24,147
100.0
1958
1,802
10.8
14,820
82.2
16.622
100.0
1959
7,632
26.5
21,164
73.5
28,796
100.0
1960
2,752
17.1
13,302
82.9
16,054
100.0
1961
4,401
32.2
9,109
67.4
13,510
100.0
Total
24,669
23.2
81,396
76.8
106,065
100.0
Table
NATION-BUILDING
TRANSACTION TYPE
GOVERNMENT
BONDS
TRADING
BY
Securities trading
Year
Amount
Proportion
Settlement
Amount
Total
Proportion
Amount
Proportion
1956
1,023
34.2
1,971
66.8
2,994
100.0
1957
3,812
19.1
16,196
80.9
20,007
100.0
1958
3,938
26.6
10,882
73.4
14,820
100.0
1959
5,971
28.2
15,193
71.8
21,164
100.0
1960
4,314
32.4
8,988
67.6
13,302
100.0
1961
4,754
52.2
4,355
47.8
9,109
100.0
- 4 -
Trading
Amount
(million
won)
40
L i s t e d
capital
Stock
(million
won)
16,971
57,654
26,000
17
36
22,228
317
27,039
1965
17
35
23,162
43
9,171
1966
24
26
32,451
49
11,160
1967
24
25
46,083
72
24,917
Number of
listed
companies
Number of
Securities
firms
Year
1963
15
1964
(1968-1978)
- 5 -
secondary
market
that
merely
traded
already
issued
securities.
From the late 1960s, the government began focusing its policies
on promoting Korea's securities market and announced that 1969
would be "the year for fostering the capital market." In addition,
the government also undertook a series of measures to boost the
securities market by enacting relevant laws and improving the
institutional framework.
1966
Equity
capital
External
funds
Total
1967
Amoun
Proporti
Amount
Proportion
Amount
Proportion
t
36.2
on
23.9
46.6
20.8
67.7
18.8
115.2
76.1
178.0
79.2
291.6
81.2
151.4
100.0
224.6
100.0
359.3
100.0
1966
External
funds
Indirect
financing
Direct
financing
International
Borrowing
1968
1967
1968
Amoun Proporti
on
t
115.2
100.0
Amount
Proportion
Amount
Proportion
178.0
100.0
291.6
100.0
43.5
37.8
73.6
41.3
137.5
47.1
22.9
19.8
39.8
22.4
45.4
15.6
48.8
42.4
64.6
36.3
108.7
37.3
- 6 -
state-owned
Korea
Investment
Corporation
(KIC)
was
of
one-year
deposits
were
guaranteed,
and
entry
- 7 -
Sales
Year
Cases
Amount
1968
160
1969
12
1970
Cases
Total
Corporate bonds
Amount
Cases
Amount
Cases
Amount
180
2,211
12
2,221
2,068
2,068
1971
850
850
1972
955
125
1,080
35
9,928
1973
35
17,756
12
3,719
47
21,475
12
3,450
1974
12
9,227
5,110
19
14,337
59
27,870
Year
No.
of
issues
No. of
Management
companies
No. of
bene-f
iciarie
s
1968
1969
1970
1971
1972
1973
1974
1
1
1
3
10
17
27
1
1
1
1
2
2
3
96
102
664
1,362
1,316
10,086
74,811
Fund size
Total
Bond
Stock
types
types
100
100
53
200
200
48
400
400
372
2,100
2,100
1,731
2,100
4,630
6,730
1,461
4,600 14,430 19,030
3,997
48,90 18,880
25,60
23,30
0
0
0
* Source: A Decade of Securities Supervisory Board (SSB) by the SSB
3,868
10,808
23,62
3
53
48
372
1,713
5,329
14,805
42,503
privatized
state-owned
- 8 -
companies
and
urged
- 9 -
year
Mandat
e-type
Trusttype
Total
1972
withsavin
draw
gs
als
1973
with
sa v i n
-dra
gs
wals
184
54
1,196
711
184
54
1,196
1974
withsavin
draw
gs
als
7,78 5,70
8
1,172
518
8,96
711
6,221
1975
withsavin
draw
gs
als
3, 57 3,6 0
1976
wit h
savi
-dra
ngs
wals
1 , 6 6 3,96
8
2,781
8
294
147
-
363
0
343,
6
326,
5
65,4
29
53,5
138
344,
257
330,
81
29,8
47
32
798
223
44
1973
183
58,807
147
13,262
10,043
193
1974
281
102,355
217
27,249
16,938
242
- 10 -
ts
3
49,9
Asse
2
61,87
Year
No. of unions
No. of members
No. of depositories associations
No. of depository shares (thousand)
Acquisition cost (million won)
Savings amount (million won)
Total
29,4
companies
were
also
introduced
to
promote
fair
Year
No. of
listed
companie
s
No. of
shareholder
s (10k)
Listed
capital stock
(mil won)
1968
1969
1970
1971
1972
1973
1974
34
42
48
50
66
104
128
40
54
76
82
103
200
200
95,585
119,902
2134,292
141,357
174,339
251,620
381,344
- 11 -
Market
Cap of
listed
stocks
(mil won)
64,323
86,569
97,923
108,706
245,981
426,247
532,825
Trading
volume
(mil share)
Stock
financing
(mil
won)
76
98
79
50
84
130
157
9,247
6,099
7,151
2,940
24,741
54,548
74,287
1975
1976
1977
1978
1979
189
274
323
356
355
291
568
395
963
872
643,315
1,153,325
1,492,375
1,913,505
2,202,262
916,054
1,436,074
2,350,835
2,892,512
2,609,414
310
591
1,272
1,368
1.561
156,255
262,255
362,452
653,062
841,432
policies
focusing
on
stable
growth
and
surging
- 12 -
The
government
announced
four-phased
Capital
Market
issuance
of
convertible
bonds
overseas
provided
an
reciprocally,
local
investment
in
overseas
markets.
In
Investment
and
LG
established
- 13 -
Phase 1
(1981-1984)
Phase 2
(1985-1987)
Phase 3
(1988-1989)
Contents
- Limited permission for international investment trusts
- Establishment of the Korea Fund
- Issuance of beneficiary certificates for foreign investors
- Allow foreign securities firms to open representative offices
in Korea
- Nurture financial professional in securities related institutions
- Improve legal/institutional framework for globalization
- Limited permission for foreign direct investment
- Gradual relaxation of limits on international investment trust
- Full permission on foreign investment
- Allow companies to issue and list stocks on foreign
securities markets
- Permit foreign securities firms to establish subsidiaries in
Korea, and domestic firms overseas
- Allow Korean investors to make investments in foreign
securities markets
Phase 4
(1990 - )
expanding
its
disclosure
requirements
and
measures
to
limit
stock
ownership,
and
improved
- 14 -
at
market
price.
The
securities
deposit
system
was
- 15 -
From 1986 to 1995, the Korean securities market was full of hope
and vigor. Since the 1980s, market mechanisms had worked to
focus the country's economic drive toward the private sector, with
the
Korean
economy
beginning to
open
and interest
rates
- 16 -
also
began
to
modernize,
adopting
advanced
of
measures
was
undertaken
to
encourage
venture
the
computerized
trading
settlement
system
were
both
increase
coordination
committee
and
the
issuance
- 17 -
loans
to
investment
trust
companies,
established
stabilization
funds.
Additionally,
it
encouraged
listed
all
certified
securities
companies
in
June,
the
further
- 18 -
securities firms. In
on
individual
lifted
until
full
funds were
- 19 -
Year/
Month
1992.01
1994.12
1995.07
1996.04
1996.10
1997.05
1997.11
1997.12
1998.04
1998.05
2000.11
investor
10
12
15
18
20
23
26
55
55
100
100
investor
1
1
1
1
1
1
1
1
1
3
3
investor
8
8
10
12
15
18
21
25
25
30
40
KOSDAQ listed
corporations
All
Per
investor
5
50
100
100
investor
15
55
100
100
Stocks
Bonds
Total
2001
1,300.5(16.6)
6,512.9(83.4)
7,813.4(100)
2002
1,793.7(15.6)
9,698.0(84.4)
11,491.7(100)
2003
3,415.8(19.7)
13,926.9(80.3)
17,342.7(100)
2004
9,009.0(31.8)
19,357.7(68.2)
28,367.7(100)
- 20 -
- 21 -
Stock
market
Phase 1(1993)
- Lifting
investment
restrictions on
companies that
have 50% or
greater foreign
ownership
through direct
investment
Phase 2(1994-95)
Phase 3(1996-97)
- Further lifting
the ceiling on
foreign
investors stock
investment
- 22 -
(Aug. 1993)
- Allowing direct investment
into CBs issued by SMEs
(1994)
- Allowing the underwriting of
government bonds which
have interest rates similar to
international rates in the
primary market (1994)
- Operation of bond funds
(1995)
- Allowing international
organizations to issue
won-denominated bonds
(1995)
Bond
market
6.
THE
ASIAN
FINANCIAL
CRISIS
AND
- Allowing direct
investment in
non-guaranteed
long-term
bonds of SMEs
(1997)
REFORM
MEASURES
(1996-2003)
and
restructuring
measures
allowed
the
market
to
- 23 -
was
permitted
from
September
1996
and
price
to
encourage
domestic
companies
to
become
more
- 24 -
Inducement
Act
was
amended
to
attract
foreign
financial
securities
businesses,
were
fully
liberalized
and
No. of
entities
at the
end of
1997(A)
MB
SF
IT
Revocation
of
authori
-zation
Merge
r
22
5
6
7
4
1
30
36
30
Bankrup
tcy/
busines
s
suspens
i-on
2
-
Total
(B)
Weight
(B/A)
29
11
7
96.7
30.6
23.3
New
entities
No. of
entities
in Jul.
2004
1
18
22
2
43
45
relaxed
for
foreign
investment
trust
companies
and
- 25 -
1998.
Securities
investment
by
foreign
portfolio
The Stock Index Future (SIF) market opened in May 1996, allowing
foreign direct investment (FDI), though with some restrictions which
were later eased in July 1997. The Stock Index Options (SIO)
market also permitted FDI, imposing the same level of restrictions
as the SIF market. In May 1998, foreign investment restrictions in
the stock market (excluding public corporations), SIF and SIO
markets,
and
beneficiary
certificates
were
all
lifted,
and
- 26 -
Direct
investment
in
the
bond
market
by
foreign
portfolio
to
enhanced
market
liberalization
and
boost
authorized
corporations.
banks
and
Additionally,
trust
the
companies
requirements
to
authorized
for
registering
approval,
was
required
to
provide
discretionary
environment
government
revisited
due
the
to
the
licensing
Asian
and
financial
approval
crisis,
the
system
for
- 27 -
allowing
both
company-type
investment
trusts
and
Later
in
December,
the
Indirect
Investment
Asset
- 28 -
statements
were
required,
with
certified
public
- 29 -
of
shifting
its
function
from
merely
supporting
other
- 30 -
promising
venture
companies
and
SMEs.
Finally,
in
In January 2005, the SEA was revised to improve the tender offer
system and require substantial shareholding of stocks to be
reported as the number of hostile M&A increased. Later in July,
controlling shareholders of securities companies were required to
receive authorization in advance from the FSC.
In August 2007, the government enacted the FSCMA, with the Act
coming into effect in February 2009. FSCMA integrated the six
previously separate statutes governing Korea's capital market
including the SEA, the Futures Trading Act and the Indirect
Investment Asset Management Business Act in an attempt to
enhance competitiveness and promote investor confidence through
stronger
investor
protection
measures.
This
was
the
most
- 31 -
- 32 -
Act
pivotal for
creating
The 1995 Futures Trading Act provided a legal basis for the
establishment of the Futures Exchange and introduced measures
- 33 -
business
and
regulatory
the
futures
requirements
for
business.
The
establishing
Act
a
also
futures
business, such as the terms and procedures for licenses and the
scope of business activities.
asset
management
business
by
defining
an
asset
- 34 -
and
the
investment
advisory
business
that
were
and
stricter
investor
protection,
FSCMA
drastically
issued
of
this amendment
is to
create a regulatory
- 35 -
businesses.
investment
banks,
(ii)
of
Korea's
fund
First
of
all, to
promote
the
development
of
major
Korean
investment
comprehensive
service
providers).
financial investment
service
Such
qualified
providers shall be
of
standard
prime
brokerage
contract)
and
(ii)
comprehensive
- 36 -
The
revision
bill
also
creates
investment
service
provider
alternative
trading
system
new
category
multilateral
(ATS).
This
of
trading
will
enable
financial
facility
or
securities
- 37 -
excessive
scalping
and
use
of
information
by
- 38 -
case
of
the
capital
market,
MOFE
had
licensing
and
AEFSO
reshuffled
Koreas
existing
divided
supervision
- 39 -
Supervisory
Commission
into
the
Financial
Services
As
government
organization,
the
FSC
is
board-style
- 40 -
restrictions
on
financial
organizations;
licensing
and
also
manages
the
business,
operation
and
The nine commissioners of the FSC include the Chairman and Vice
Chairman of the FSC, the Vice Minister of Finance and Planning,
the Senior Deputy Governor of The Bank of Korea, the President of
Korea Deposit Insurance Corporation, the Governor of the FSS, two
persons nominated by the Prime Minister and appointed by the
President of Korea. The Vice Chair is nominated by the Chair of
the FSC and appointed by the President of Korea. The Chair and
Vice Chair each has a three-year tenure with a limit of two terms.
- 41 -
establishment
and
implementation
of
corporate
accounting
- 42 -
specialized
supervisory
functions
over
the
Korean
Under the guidance from the FSC and SFC, the FSS conducts
inspections of and supervision over financial institutions. It reports
the results to the FSC, as well as any follow-up recommendations
relating to the inspections, the FSC and SFC can guidance over the
FSS and the FSC can also enact general or partial suspension
orders to actions taken by the FSS or SFC when those actions are
deemed to be legally inappropriate or to go against the public
benefit, such as investor or depositor protection.
Deputy
Governors,
and
one
auditor.
The
governor
is
of
Korea,
and
the
Senior
Deputy
Governors
are
- 43 -
4. Self-Regulatory Organizations
- 44 -
as
debt
securities,
equity
securities,
beneficiary
securities,
The
responsibilities
of
the
Korea
Exchange
include
the
deduction;
settlement items
guarantees;
confirmation
of
settlement
securities;
follow-up
measurers
on
settlement
failure
and
corporations;
and
resolution
of
disputes
arising
from
The
Korea
incorporated
Financial
Investment
membership
Association
organization
- 45 -
for
(KOFIA)
the
is
an
purpose
of
investment
collective
firms,
investment
assessment
general
scheme
companies
and
administration
assessment
members
companies,
companies,
under
the
bond
conditions
of
dispute
mediation
self-mediation of conflicts.
- 46 -
rules
for
industrys
Chapter 2
Framework of Financial Investment Services and
Capital Markets Act (FSCMA)
I. Legislative Background and Process
FSCMA is the result of Koreas previous financial reforms, and
aims to enhance investorsconfidence in the Korean capital
market while boosting the vigor and competitiveness of the capital
market and market-related financial industries. At the time of
enactment,
the
Korean
capital
market
displayed
lopsided
- 47 -
separately
governed
the
securities,
futures
and
asset
(iii)
Because
concurrently
operating
various
financial
services
- 48 -
Therefore,
after
thorough
reviews
and
analyses
of
overseas
integrated
consultation
capital
with
the
market
law,
drafting
industry
and
academia.
bill
in
close
The
bill
was
- 49 -
Assembly (Government)
Jul. 2, 2007
Committee
(FEC)
of
the
National
Assembly
(National
Assembly)
Jul. 3, 2007
order
to
resolve
the
above-mentioned
problems
through
1. Comprehensive Approach
- 50 -
instrument,significantly
broadening
the
scope
of
FSCMA
defines
financial
Investment
instruments
as
right,
- 51 -
financial
market
as
it
implies
that
certain
financial
2. Function-based Regulation
the
matter.
It
did
so
by
re-classifying
financial
- 52 -
business,
brokerage
business,
investment
advisory
- 53 -
Based on
(authorization,
registration),
corporate
soundness
- 54 -
expertise
they
possesses
in
connection
with
the
financial
investment instruments, the scale of their assets, etc. and who fall
within the categories set forth in FSCMA, such as the State, The
Bank of Korea, financial institutions, etc. However, FSCMA also
states that if a professional investor notifies a financial investment
business entity in writing of its willingness to be treated as an
ordinary investor, then such investor should be treated as an
ordinary investor.
recommendation
means
recommending
financial
- 55 -
investment
decisions.
Additionally,
when
financial
purpose,
financial
status
and
previous
business
companies
may
engage
in.
All
financial
- 56 -
FSCMA
expressly
upgrades
the
investor
protection
system.
This
is
to
a system to prevent
- 57 -
. Structure of FSCMA
1. Overview
to
implement
the
stated
obligations.
Regulations
stated
Regulation
obligations.
on
Financial
The
FSCMA
Investment
regulations
Business,
contain
the
Regulation
on
enforcement
rules,
the
FSS
defines
the
authority
- 58 -
- 59 -
Brokerage Companies.
RFIB defines matters that are required for the regulation and
supervision of governance, soundness, and business activities of
licensed or registered financial investment firms. However, among
the various financial investment business areas, concurrently-run
financial investment business entities such as banks and insurance
companies, which are partially licensed or registered, are not
subject to the regulations on the governance, accounting, financial
soundness, and restriction on trading with major shareholders.
RFB
also
stipulates
over-the-counter
issues regarding
(OTC)
trading
of
the
supervision
non-listed
stocks,
of
the
bonds,
firms
and
professional
bond
dealers,
RP
trading,
- 60 -
The
Regulation
of
Securities
Issuance
and
Disclosure
(RSID),
To
ensure
the
fairness
of
securities
issuance
and
investor
RSID
defines
matters
that
are
needed
for
the
concrete
- 61 -
as
acquisition
disposition
and
of
treasury
are
required
stocks
of
for any
stock-listed
- 62 -
Chapter 3
Definition and Classification of Financial Investment
Products
I. Introduction of the New Definition of Financial Investment
Products
1. Definition of Financial Investment Products
specified
in
the
Presidential
Decree,
such
as
sales
- 63 -
The
most
important
characteristic
of
any
covered
financial
investment product is its investment risk, which is the risk that the
total
amount
recovered
or
recoverable
under
the
financial
by
the
investors
due
to
bankruptcy
or
debt
of
failure
in
collecting
the
deposits
or
insurance
counterparty.
The
traditional
deposit
and
insurance
- 64 -
Some might argue that this should be the case because both
tests (i.e. the risk of loss on investment and the purpose of profit)
- 65 -
investment
products,
the
legislative
purpose
of
protecting
investors
and
cultivating
sound
finance
Therefore,
the
definitions
of
two
subcategories
of
financial
- 66 -
derivative, would it be a
Conversely,
excluded
form
the
definition
of
financial
investment
derivative,
products.
the
two
Applying
allowances
or
subcategories
this
loan
method,
receivables
of
financial
greenhouse
are
not
investment
gas
emission
considered
financial
or
sub-category
loan
and
receivables
would
be
fall
under
considered
the
derivatives
financial
investment
products.
and
derivatives,
over-the
counter
derivatives
and
- 67 -
FSCMA uses
a comprehensive
definition for
the
concept
of
1. Definition of Securities
According to FSCMA, securities are defined as financial investment
instruments for which investors do not owe any obligation to pay
anything in addition to the money or asset paid at the time of
acquiring such instruments (excluding obligations to pay where an
- 68 -
2. Classification of Securities
FSCMA also
- 69 -
However,
the
investor
who
purchase
but
derivatives-embedded
fully-funded
securities.
credit-linked
notes
Derivatives-embedded
are
securities
- 70 -
pe
under
the
FSCMA
are
financial
investment
products,
of
which
can
be
calculated
- 71 -
or
assessed
in
such
reasonable
or
appropriate
manner
necessary
to
protect
the
investor.
2. Classification of Derivatives
- 72 -
OTC
sophisticated
derivatives
parties (such
are
largely
entered
into
between
- 73 -
- 74 -
Chapter 4
Regulation
of
the
Financial
Investment
Service
Industry
I. Classification of Financial Investment Services
Under Article 6(1) of the FSCMA, "financial investment services" are
defined as activities conducted continuously or repeatedly for the
purpose of earning a profit, falling under one of the six categories
of businesses: dealing businesses, brokerage/arranging businesses,
collective
investment
businesses,
non-discretionary
investment
brokerage/arranging
business,
and
trust),
or
business,
complete
collective
registration
(in
investment
case
of
- 75 -
- 76 -
unit
of
financial
investment
business.
Depending
on
the
are
already
authorization
on
or
the
market
registration
by
can
apply
selecting
for
the
additional
necessary
intends
to
brokerage/arranging,
transact
which
(in
of
the
case
securities,
of
dealing
and
exchange-traded
- 77 -
requirements.
with
investors'
asset
(brokerage/arranging
business,
(iii)
In
the
realm
of
financial
investment
products,
stricter
with
non-discretionary
investors
than
those
with
professional investors.
For
instance, the
strictest
requirement
applies
to
businesses
- 78 -
- 79 -
arguments: (1) the market failure theory notes the failure of the
market; and (2) the theory recognizes asymmetric information consumer protection is necessary due to asymmetric information in
the market. Thus the duty to explain and the principle of suitability
are the specific embodiments of the principle of good faith, which
- 80 -
activities.
These articles may in part incorporate the duty to explain and the
principle of suitability; however, they also differ. For example, the
Enforcement Decree of the Securities and Exchange Act prohibits
- 81 -
the
original laws
and
newly
organizes
investor
law itself.
- 82 -
and
discretionary
investment
businesses,
which
- 83 -
rule had not been incorporated into law but was enforced by the
Financial Supervisory Service in practice. FSCMA made this rule into
law. Furthermore, the "Principle of Appropriateness" was added in
Article 46-2 in 2009, stretching the principle of suitability into the
field of derivatives.
or
questions
and
confirm
these
facts
with
the
- 84 -
that
can
reasonably
influence
an
investor's investment
The previous Securities and Exchange Act was silent on this duty.
The
Financial
Supervisory
Commission's
Securities
Business
foreign
currency
securities
or
other
equivalent
- 85 -
proof that the losses are less than estimated amount is on the
financial investment service company. FSCMA is silent on who
bears the burden of proof as to the compliance or breach of the
duty to warn of and to explain risks.
of
wealth]
and
investment
experience,
and
obtain
- 86 -
expanded
Notably,
FSCMA
the
range
prohibits
of
unjust
'unsolicited
solicitation
calls'
and
practices.
'continuing
For sales of OTC derivatives, visits and phone calls not made at
the investor's request are prohibited. This prohibition is not
applicable to the solicitation of securities and exchange-traded
derivatives, as the regulators and legislators believed that such
activities posed no potential threat to customer protection and
sound orderly trading in this area.
- 87 -
- 88 -
competitiveness
through
the
advantages
generated
by
the
pre-existing
law,
such
as
Article
43
of
the
Securities
investment
business
entities.
The
following
- 89 -
section
collective
investment
business
entities,
investment
- 90 -
business conduct
protect
the
interest
by the
of
entities in order to
investors.
The
following
- 91 -
party
in
single
transaction
involving
financial
by
undermining
the
interest
of
specific
collective
or
sound
trade
practice,
a financial investment
- 92 -
B. Front-running
- 93 -
C. Churning
- 94 -
and
such
conflicts
shall
be
properly
controlled
in
officers
who
shall
be
- 95 -
responsible
for monitoring
compliance
with
the
internal
control
guidelines,
investigating
Preparing the
internal
of
powers
between
management
and
business
- 96 -
assign
any
of
its
executives
or
employees
to
the
flow
of
material,
nonpublic
information,
thus
- 97 -
Chapter 5
Corporate Disclosure: Listing and Public Offers
I. Corporate Disclosure System
The corporate disclosure is a system designed to protect investors
by allowing them to make informed investment decisions and to
enhance fair trading and the overall stock market's operational
efficiency by making stock issuers and listed companies to disclose
their
major
management-related
information.
The
provisions
the
disclosure
regulations
under
the
FSCMA
In
cover
- 98 -
- 99 -
- 100 -
1. Generally
The stock markets can be divided into the primary market where
the investors first takes the issued stock by a company, and the
secondary market where the trading of already issued stock occurs
among investors. To ensure the accurate and timely disclosure of
business information regarding assets and management conditions,
etc. or security matters by listed corporations, FSCMA stipulates
certain disclosure obligations. The disclosure system under FSCMA
is divided into disclosure in the primary market and disclosure in
the secondary market.
The disclosure system under the primary market creates an
environment where investors make informed investment decisions
based on comprehensive information. Corporations that issue
securities are required to disclose public securities registration
statements, business prospectuses, records of securities issuances,
etc.
The essence of primary market regulation consists of the filing of
registration statement and the delivery of prospectus. In principle,
a public offering can only be made after filing a registration
statement with the FSC and the acceptance thereof. Entering into a
contract with an investor can be made only after the registration
statement becomes effective. After the filing of the registration
statement, the issuer in a public offering shall submit a prospectus
to the FSC, and a financial investment company cannot sell
securities or cause them to be sold to investors before delivering
- 101 -
disclosure
obligation
exists.
Therefore,
the
offering
or
issuer
- 102 -
- 103 -
protected
by
public
disclosure
such
as
the
debt
securities
- 104 -
2. Registration Statement
No securities shall be publicly offered or sold, unless and until a
registration statement filed by the issuer in connection with the
public offering or sale of the securities with the FSC is accepted
by the FSC (limited to cases where the total amount securities by
Presidential Decree, reaches or exceeds the amount prescribed by
10 billion KRW (Article 119(1)).
The Registration Statement is a key document in public disclosure
system in the offer and sales of securities for guaranteeing the
truthfulness of the issuer and the issued securities, thereby
preventing the securities fraud.
An issuer of securities is responsible for the filing of registration
statements
strengthen
the
management
responsibility
- 105 -
for
transparent
issuance
in
the
shelf-registration
statement.
For
each
filed with FSC, SFC, FSS, KRX, KOFOIA or KSD, filing can be made
by an electronic document using an electronic communication
network (Article 436).
The
FSC
shall not
refuse
the
acceptance
- 106 -
of
registration
if
the
registration
statement
fails
to
meet
the
required
formalities; or
(ii) if the registration statement contains a false statement of
material information or omits material information
Prior to the FSC/s acceptance of the registration statement,
investment solicitation of an offer is prohibited.
3. Prospectus
The FSCMA does not provide the definition of prospectus, but it is
a document (including electronic document) prepared for the
purpose of soliciting an offer toward investors in a public offering
(Article 123, 124).
There are 3 types of prospectus: (i) prospectus, (ii) preliminary
prospectus, (iii) summary prospectus.
(i) Prospectus can be used after the effectiveness of filing the
registration statement and must be delivered to the investor before
executing a contract except where the investor is a professional
investor or certain other investor prescribed under the Presidential
Decree or investors who expressed its refusal to receive the
prospects or the investor who intends to acquire the same type of
collective investment securities that it has already acquired.
(ii) Preliminary prospectus is used during the period after the
- 107 -
when
solicitation
of
an
offer
is
made
through
(a)
means.
The prospectus must be submitted to the FSC on the date when
the registration statement is effective and it must be kept at the
head office of the issuer, the FSC, the KRX and the places where
the solicitation business occurs. The preliminary prospectus and the
summary prospectus must be submitted to the SFC when the filing
of the registration statement with the FSC.
by the
issuer (Article
122(1))
and can
impose
of
securities
(Article
132).
An
Administrative
- 108 -
or to a fine
are
matters
which
may
materially
affect
the
- 109 -
to
disclose
business
in
the
secondary
market.
Such
disclosures
include
companies
submitting
information,
in
case
- 110 -
of
timely
2. Periodic Disclosure
Periodic disclosure includes annual, semi-annual and quarterly
reports.
Periodic disclosure is required for the stock-listed companies and
other companies prescribed under the Presidential Decree(a listed
company with more than 500 shareholders and etc).
Periodic
disclosure
business
details.
means
When
periodically
the
disclosing
number of
to
investors
shareholders of
the
- 111 -
the
preceding
business
year
must
be
disclosed
and
submitted to the FSC and KRX within 90 days after the end of
that business year. As for the Semi-annual Report, the business
results, etc. from the first six months of the business year must
be disclosed and submitted to the FSC and KRX within 45 days
after the end of the semi-annual period. As for the Quarterly
Report, the business results, etc. from the first three months and
nine months must be disclosed and submitted within 45 days
after the end of each quarterly term. As for the Main Statements,
matters related to the companys purpose, trade name, business
details,
officer
compensation,
finances,
and
other
matters
- 112 -
3. Timely Disclosure
- 113 -
suspension
of
company,
application
of
business
delay.
As
for
the
submission
deadline,
same
day
- 114 -
Important
corporate
matters
(Article
of
the
Disclosure
- 115 -
that
if
company
deliberately
discloses
certain
should
also
provide
such
information
to
ordinary
5. Voluntary disclosure
6. Special disclosure
- 116 -
- 117 -
must be aggregated
- 118 -
holding
(from
simple
investment
to
participation
in
- 119 -
materials to the FSC and the KRX no later than 5 business days
prior to the scheduled date for the delivery of such documents to
the shareholder and procured that such documents kept and the
head office, branch and other business offices, etc. during the
period of 5 business days prior to the delivery of such documents
to the shareholder until the date when the shareholder's
meeting
cancellation of the
voting
stocks
or
any
other
securities
specified
by
and
(2)
purchasing
them
outside
the
securities
tender
offer
regulations
are
- 120 -
necessary
for
The
protecting
offer,
if
the
aggregate
of
the
number
of
stocks,
etc
- 121 -
based
on,
as
the
underlying asset,
securities
under
The
- 122 -
- 123 -
need to send the copy of public tender offer statement to the issuing
corporations after submitting it to the Korea stock exchange(Article
135).
it for public inspection, the public tender offer starts. Accepting offers
are made during the public tender period(more than 20 days after
the public tender offer period starts)(Article 137). Then pro rata
allocation(in case of the over limit offers are made) or purchase for
stocks are made. The public tender offerer send the public tender
offer notice to the tendering shareholders and file the public tender
offer result report to the FSC.
In case of violating the tender offer regulations, the person who
violates Article 133(3) or 134(1) or (2) in purchasing stocks and etc,
may not exercise voting rights for the stocks(including the stocks
acquired by exercising any right related to the stocks, etc) from the
day of such violation, and the FSC may issue an order to dispose of
such stocks, etc(including the stocks, etc acquired by exercising any
right related to the stocks etc) within a given period of time, not
exceeding 6 months(Article 145). The Financial Supervisory Service
have several measures for investor protection including the inspection
of the accounting books, documents, and other materials of tender
offerers and his/her specially related persons or tender offer agent,
and other related persons(Article 146(1)) or ordering the tender offerers
and his/her specially related person or tender offer agent to disclose
relevant facts to the public and making a correction and suspending
or prohibiting purchasing through the tender offer or taking any
measures
in
case
of
violating
the
tender
offer
public
notice
- 124 -
purchase
written
on
the
relevant
tender
offer
prospectus(Article
444
item
15)
shall
be
sentenced
to
7. Submittal of disclosures
A listed company shall submit its disclosure via the FSS's electronic
disclosure system DART (Data Analysis, Retrieval and Transfer
System)
or the
KRX's
KIND
Korea
When a report is made to the FSS via its DART System, it shall be
regarded as having also been made to the KRX.
webpage
Disclosure
submittal
- 125 -
system
- 126 -
Chapter 6
Unfair
Trading:
Insider
Dealing,
Misleading
The prohibitions
realize
its
goal.
The
principle
underlying
the
regulations
of
fraudulent
products
and
transactions
introduced
with
multiple
comprehensive
financial
anti-fraud
- 127 -
FSCMA
maintains the basic structure of the regulations under the SEA, but
expands the scope of insiders, financial investment products and
trading subject to the regulations.
The securities subject to unfair trading regulations are (i) securities
(excluding the ordinary corporate bonds and beneficial securities)
issued by that corporation; (ii) securities depositary receipt related
to the securities (i) above; (iii) exchangeable bonds issued by a
company other than that corporation which can be exchanged
with (i) or (ii,; and (iv) a financial investment product whose
underlying assets are only the (i), (ii), or (iii), which are derivatives
linked securities, exchange traded derivatives and OTC derivatives.
Under the previous SEA, only the securities issued by that
corporation was regulated, but FSCMA covers the securities whose
underlying assets are the securities related to that corporation.
- 128 -
aware
of
the
material
nonpublic
information
in
- 129 -
insiders)
with
knowledge
of
the
importance
of
such
- 130 -
among
ordinary
daily
newspapers
and
daily
Information
broadcast
through
television
or
radio
with
- 131 -
- 132 -
176(2)(i)),
(iii)
manipulation
by
false
representations,
etc(Article 176(2) (ii) and (iii), (iv) manipulation through price fixing
or stabilization(Article 176(3)).
price change through actual dealings, but also acting with the
purpose to cause any person to misunderstand that the trading of
listed
stocks
or
exchange-traded
derivatives
is
booming,
or
with
another
person
to
sell
the
securities
or
- 133 -
19
PROHIBITED
ACTS
OF
MARKET
PRICE
MANIPULATION
Act of manipulation
Detail
acts resulting
committing
in
any
false trading
of
listed
stocks
are
actual trading
of
such
securities
or
rumor
that
false
or
misleading
exchange-traded derivatives
selling or purchasing listed securities
or exchange-traded derivatives to fix
- 134 -
or
stabilize
the
market
price;
As
for
the
manipulation
introduction
(Article
of
176(4)
regulations
on
of
Article
FSCMA,
the
cross-market
207
of
the
- 135 -
The recent
false
transactions
in
financial
investment
instruments;
or
- 136 -
loss derived from unfair trading exceeds KRW 500 mn, the fine is
three times the amount of the profit or loss derived from such
unfair trading.
There are other types of unfair trading regulations stipulated under
FSCMA as follows. (i) The discretionary sale by an officer and
employee of a financial investment service company(Article 70); (ii)
Illegal sales by an officer and employee of an financial investment
service company (Article 63) and etc.
Discretionary trading and excessive trading are the most common
disputed issues between the investors and brokers. Discretionary
trading is prohibited under the FSCMA as prescribed by Article 70,
no investment trader or investment broker shall trade financial
investment instruments with property deposited by an investor in
the absence of an order for the trading of such financial
investment instruments from the investor or his or her agent.
Excessive trading is the practice where a broker purchases and
sells stocks excessively in its size and frequency in view of the
financial resources of such customer in order to get more
commission, not in the best interest of the customer. Discretionary
- 137 -
- 138 -
Chapter 7
Regulation of OTC Derivatives
I. Overview
The FSCMA defines financial investment products by adopting an
inclusive approach for the different types of financial products
(Article 3) and there are 4 elements for the financial products: the
intention of investment, investment risk, transfer of money and
rights stipulated in an agreement. Specifically, investment risk
refers to the possibility that the total amount of money paid or
payable for acquiring the financial instrument may exceed the total
amount of money recovered or recoverable from the financial
investment products, and the possibility exists of losing principal
subject to the FSCMA.
A derivative is a financial investment product that is derived from
other assets, which are called the underlying assets (Article 5).
There are 3 types of basic forms of derivatives: forwards (futures),
options, swaps. A forwards contract is an agreement to buy or
sell an asset on or before a future date at a price specified at
the time of the agreement. An option is a contractual rights given
to an individual allowing him or her to buy or sell an underlying
asset at an agreed price on or before a certain date.
Derivatives
- 139 -
derivatives.
Table 20 TYPES OF DERIVATIVES
Types
Forwards/future
Options
Swap
Interest
rates
Interest
futures/ FRA
c u r r e n c y
options
Foreign currency
futures/forward
currency options
Stock/Stock
exchange
Stock(Stock index)
Stock(Stock index)
index swap
futures
options
Credit
Others
Underlying
assets
Interest rates
rate
Interest
rate
swaps
c u r r e n c y
swaps/FX swaps
Equity swaps
Exchange-traded
derivatives
futures, options
trades in an exchange
transaction method
forwards,
options,
swaps
negotiated
between
electronic
standardized
- 140 -
in
trading transaction
OTC derivatives
the
privately
and individually
specified
underlying
trading
on
exchange
transparent
price transparency
price
changes frequently
transactions
of
clearing house
daily settlement
credit risk
non-transparent
must be specified
agreed once contract is
made
clearing houses
counterparty
involved
done at an exchange
does not exist as the
available
sized
enterprises with
lower
credit rating
not involved
not done
always exists
the
house
as
act
on
a is
all
are
closed
the
before
through
cash
settlements,
and
dependent
reliability
only
most
settled
contracts
by
as
are
physical
delivery at expiration
bid-ask spread
agreed
specified as a particular not specified
- 141 -
the
of
on
counterparties
contracts
most
contracts
settlement date
as
transaction fee
to
exchanges
counterparty
margin
by
transaction parties
not
market participants
made
and relatively
counter party
guarantee
an
decisions
by
the
regulation
The
terms
of
the
total
balance
accounted
for
by
derivative
2590000
6010000
7022000
fit
- 142 -
introduction
of
a proper
supervision system
- 143 -
for
specific description
legal implementation
- 144 -
is not
- 145 -
become necessary to
management systems.
- 146 -
- 147 -
- 148 -
- 149 -
- 150 -
definitions
sourced
from
various
investors
is
collected
into
an
asset
management
companies.
The
returns
from
the
that
case
falling
under
any
of
the
following
- 151 -
provided by the
collective
investment business
entities(investment trust)
(2) A collective investment scheme in the form of a stock company
under the Commercial Act(investment company)
(3) A collective investment scheme in the form of a limited liability
company under the Commercial Act(investment limited liability
company)
- 152 -
securities,
etc.
for
participation
in
management,
issuing
equity
securities
only
through
private
collective
investment
securities
only
through
private
investment
company,
an
investment
limited
partnership
- 153 -
means a decision
- 154 -
clearly
separated
from
management
company.
separation,
funds
any
Depending
are
other
assets
on
classified
the
as
of
legal
an
asset
method
either
of
trust-type
and
economic
perspectives.
From
legal
perspective,
investment products,
in the
companys management.
From a financing perspective, funds lie somewhere between
traditional indirect financing and direct financing. Like banks, the
funds act as the indirect financing institution, pool capital from
investors and act as an intermediary in the flow of money. But
- 155 -
the funds issue securities unlike banks, and due to this character,
the funds are categorized as a type of financial product. The
funds can make limited investments on a limited range of assets
such as securities and real estate to meet their fundamental
purpose of achieving a specific investment goal, which is different
compared with banks. Also, the bank loans are given back to
customers in an undisclosed market, while the fund investment is
performed in an open market. So the funds have the certain
characteristics of direct financing.
Based on several characteristics of collective investment schemes,
legal standards
are as follows.
(1) Since it is a vehicle for managing and operating assets of
investors, the protection and the management of trusted assets
and the separation between the
shall be essential (Article 184, 244, 246(3) of the FSCMA, Article 21,
22, 23, 19 of the Trust Act). In this regards, the registration of the
collective investment schemes is required (Article 119, 76(3)) and
the supervision on the collective investment business are very
important. Also, for protecting investors, it is necessary to ensure
for investors to exercise their individual rights and collective rights
through the general meeting of collective investors (Article 87, 184).
(2) Since funds are dealing with lots of customers, the supervision
of investment business, the disclosure obligation of the collective
investment business (Article 89, 90), the obligations to provide
information to investors are required (Article 46-52, 59, 60, 71, 88).
- 156 -
financial
companies
to
operate
different
financial
- 157 -
- 158 -
general public, while private equity funds are only offered to select
investors with no more than 49 individuals (Article 268-279). There
are also domestic funds and overseas instruments, depending on
the investment region.
Table 23 CLASSIFICATION FUNDS BY INVESTMENT ASSETS
type
investment assets
b o n d
type
equity
type
hybrid
equity
securitie s
type
hybrid
fund
b o n d
type
investme
n
contract
securitie
s
fund of funds
or
more
of
total
assets
invested
in
or
more
of
total
assets
invested
in
s h o r t - t e r m
finance(MMF)
Real-estate fund
- 159 -
are
not
that
be
divided
into
CIS
contractual-type
funds and
the
funds according to
instructions
from
an
asset
- 160 -
- 161 -
V. AUM by Fund
At the end of 2011, the aggregate asset under management
(AUM) of unit trust stood at KRW 286.2899tn, marking an increase
of 58.8% from the 2004 figure of KRW 180.3049tn. The total AUM
of mutual funds has also seen an increase of 80.8%, from KRW
6.6878tn at the end of 2004 to KRW 12.0903tn. Unit trusts
accounts for over 96% of the total AUM in the domestic asset
management market.
- 162 -
unit trust
mutual funds
total AUM
2004
180,305(96.4)
6,688(3.6)
186,993(100)
2005
193,264(94.6)
11,081(5.4)
204,346(100)
2006
222,264(94.7)
12,466(5.3)
234,615(100)
2007
283,146(95.5)
13,315(4.5)
296,460(100)
2008
346,300(96.3)
13,187(3.7)
359,487(100)
2009
319,078(96.1)
12,802(3.9)
331,880(100)
2010
302,781(96.1)
12,401(3.9)
315,183(100)
2011
286,390(95.9)
12,090(4.1)
298,480(100)
As of the end of 2011, the total AUM held by funds for public
offering was KRW 188.1458 tn, an increase of 74.4% from the
2004 figure of KRW 108.88tn. The total AUM held by private
placement funds also got a boost of 39.5% from the 2004 figure
of KRW 79.10tn to stand at KRW 110.3344tn. The portion of private
placement funds in the total AUM still stands around 37%, though
it is on a decline. Most private placement funds are assumed to
be purchased by institutional investors such as pension funds and
large companies.
Table
25
AUM
BY
PUBLIC
OFFERING
FUNDS
AND
PRIVATE
PLACEMENT FUNDS
(unit: billion won, %)
public
2004
offering private
placement
funds
funds
107,888(57.7)
79,105(42.3)
- 163 -
total AUM
186,993(100)
2005
123,769(60.6)
80.577(39.4)
204,346(100)
2006
143,299(61.1)
91,316(38.9)
234,615(100)
2007
203,250(68.6)
93,210(31.4)
296,460(100)
2008
232,931(64.8)
126,556(35.2)
359,487(100)
2009
224,640(67.7)
107,240(32.3)
331,880(100)
2010
197,501(62.7)
117,682(37.3)
315,183(100)
2011
188,146(63.0)
110,334(37.0)
298,480(100)
As for the AUM held by the different investment assets, the total
AUM held by equity-type funds recorded a huge increase from
about KRW 9tn at the end of 2004 to a whopping KRW 126tn by
the end of 2009, before dropping to KRW 104tn at the end of
2011. This decline was due to the increased redemptions after
2009 by investors who suffered losses in 2008 global financial
crisis and were seeking to recoup those losses in the market
recovery. In the same period, the figure for bond-type funds
declined from KRW 76tn to KRW 45tn. This clearly shows that the
growth of equity-type funds has driven the rise of the total assets
managed by funds.
- 164 -
equity
type
securities
hybrid
bond
equity
2004
2005
2006
2007
8,580
26,185
46,491
116,353
type
8,160
8,383
8,891
12,878
2008
140,214
13,592
2009
126,232
2010
2011
type
26,502
34,106
39,121
31,786
bond
type
sub total
MMF
derivati
ves
others
t o t a l
AUM
75,749
51,336
50,417
40,862
118,991
119,981
144,921
201,880
59,801
64,846
57,154
46,739
4,727
12,201
16,845
22,393
3,473
7,317
15,695
25,449
186,993
204,346
234,615
296,460
25,658
30,342
209,806
88,903
27,880
32,898
359,487
13,436
18,003
46,108
210,778
71,691
19,335
37,077
331,880
100,992
12,272
20,493
52,569
186,325
66,918
18,249
43,691
315,183
104,201
11,974
18,226
44,844
179,244
53,127
22,928
43,182
298,480
- 165 -
assets due to the global financial crisis and the end of tax
exemption benefits for on-shore funds at the end of 2009.
Table 27 AUM AND TOTAL NET ASSETS OF DOMESTIC INVESTMENT
FUNDS AND OVERSEAS INVESTMENT FUNDS
(Unit: billion won)
2004
2005
2006
2007
2008
2009
2010
2011
AUM
domestic
overseas
in v e s tm e n t
investment
funds
181,310
funds
5,683(3.0)
186(100)
in v es tm e n t
investment
funds
184,460
funds
204,346
(97.0)
207,665
19,690
(100)
234,615
(95.8)
220,529
(91.6)
224,656
(8.4)
73,040
(100)
297,698
(75.5)
283,831
(24.5)
76,958
(78.7)
258,640
(97.0)
195,535
8,810(4.3)
5,659(3.0)
9,144(4.2)
total
190,119
(100)
216,809
21,904
(100)
262,633
(91.0)
233,687
(9.0)
8 4 , 7 3 4
(100)
288,507
(100)
360,789
(73.4)
245,354
(26.6)
(100)
288,507
(21.3)
73,240
(100)
331,880
(85.0)
257,682
(77.9)
251,398
(22.1)
63,785
(100)
315,183
(79.8)
241,840
(20.2)
56,641
(81.0)
(19.0)
(95.7)
214,925
43,153(15.0)
60,834
(100)
318,515
(80.9)
261,505
(19.1)
57,307
(100)
318,812
(100)
298,480
(82.0)
233,244
(18.0)
44,097
(100)
277, 341
(100)
(84.1)
(15.9)
(100)
- 166 -
Chapter 9
Financial Infrastructure : Market, Clearing Facilities,
Deposit and Settlement
- 167 -
one year later in May 1963 as the Korea Stock Exchange, a public
organization funded through joint investment by the government
and brokerage houses. As the Securities and Exchange Act was
revised
to
address
the
evolution
of
the
securities
market
Dealers
Association.
To
promote
fairness
and
intending
to
carry
out
transactions
in
securities
and
- 168 -
derivatives traders.
The Board of Directors of the KRX is comprised of the Chair of
the Board, the Chair of the Market Oversight Commission, five
standing directors and eight outside directors. The Board of
Directors decides on issues regarding management goals; budgets
and operational plans; enactment, revision and revocation of
important rules related to the KRXs operation and management;
the handling of major assets; borrowing of large-scale properties
and long-term loans; contributions and investments to other
corporate bodies, and items to be submitted to the shareholders
meeting.
2. Businesses
(1) Opening and Management of Securities and KOSDAQ Markets
The KRX engages in the businesses of listing securities, concluding
transactions, publicizing market
The
securities
are
therefore
for
the
time
being
- 169 -
- 170 -
settles
listed
derivatives,
publishes
market
prices,
and
interest
rate,
currency
and
gold
commodities
markets
- 171 -
members
and
investors
and
between
members
in
compliance
surveillance,
with
self-regulates
the
operating),conducts
trade-related
disputes,
inter-market
determines
- 172 -
processing
and
account
transfers,
and
can
be
categorized
into
- 173 -
systems,
which
are
in
charge
of
clearing
and
financial
institutions
is
offset,
based
on
the
total
of
settling
the
entire
transaction
amount
without
- 174 -
risks
emerges.
The
Gross
Settlement
Method
is
having
small
monetary
amounts
but
with
high
- 175 -
concurrent
settlement
methods.
Large-value
cases
requested
by
the
Korea
Financial
- 176 -
Recently,
with
the
development
of
information
recorded
on
bills
and
checks
is
exchanged
separate from the actual bills and checks. The differences that
occur from the clearing of bills and checks between participant
banks are settled through the participant banks current deposit
accounts opened in the BOK.
The Giro System is a payment and settlement system through
which
giro-based
account
transfers
are
batch
processed
at
payments. The
Financial
customers
with
financial
transaction
services
and
- 177 -
financial institutions and the KFTC. They also constitute the core of
the Retail Settlement Systems of Korea. The Financial Information
Networks currently in operation are the Cash Dispenser (CD)
Network, the Interbank Funds Transfer (IFT) Network, the Electronic
Funds Transfer at the Point of Sale (EFT/POS) Network, the Cash
Management Service (CMS) Network, the Local Banks Information
Network (BANKLINE), the K-CASH Network, and the Interbank
Home/Firm Banking Network (HOFINET).
As a payment and settlement system used in e-commerce online,
BANKPAY PG is divided into the B2C and B2B payment and
settlement systems, depending upon the counterparties involved.
(3) Clearing and Settlement institutions under the FSCMA
A. KRX as the clearing institutions for the securities and derivatives
market
According to the Article 378(1) of the FSCMA, the KRX shall as a
clearing
acquisition,
institution,
deduction,
perform
transaction
confirmation
of
confirmation,
settlement
debt
securities,
- 178 -
The
KSD
is
designated
as
the
securities
market
settlement
- 179 -
- 180 -
Settlement
Systems
include
the
Securities
Market
decides the
securities
and
payment
amounts
to
be
the
securities
and
payment
amount
are
settled
- 181 -
in
order
to
facilitate
the
issuance
and
effective
with
and
book-entry
settlement
system.
system
was
Koreas
introduced
securities
after
the
- 182 -
services
such as the central deposit of listed securities, book-keeping entry,
securities
clearance
and
settlement
services.
On
behalf
of
business
entities
(investment
brokerage
business
causes
for
in
quantity,
etc.,
in
the
the
- 183 -
depository
and
settlement
information
network
that
the
Securities
and
the
KOSDAQ
Market
Settlement
- 184 -
KSD
processes
the
dividends,
principal
and
interest,
- 185 -
over
deposited
securities
are
not
restricted
to
securities,
to
keep
the
deposited
foreign
currency
- 186 -
concurrent
settlement
and
fund-based
ledger
- 187 -
- 188 -
through
direct
contact
with,
or
by
means
of
- 189 -
First, as for the primary market regulation, the Article 7(6)(iii) of the
FSCMA and Article 7(3)(v) of the Presidential Decree stipulates the
regulation that applies to primary markets activities related to
extra-territorial jurisdiction. Where a Korean issuer makes a public
offering or private placement, and (i) a foreign dealer enters into
an underwriting agreement with the Korean issuer within Korea in
accordance with the criteria set by the FSC and the act is
approved by FSC or (ii) if only the deliberation to determine the
contents of the underwriting agreement is made within Korea and
related documents are
Decree
stipulate
that
if
foreign
dealer/broker
- 190 -
institutional or
III.
Regulation
Businesses
of
and
Cross
Border
Discretionary
Investment
Investment
Advisory
Management
Businesses
Foreign
investment
non-discretionary
advisors
investment
can
engage
advisory
in
discretionary
businesses
for
or
Korean
with
Korean
residents,
unlike
the
dealing
or
and
the
Article
7(3)(vii).
Providing
discretionary
or
commission,
is
not
considered
to
be
providing
- 191 -
To
engage
in
business
activities
for
Korean
residents
(whether
for
its
cross-border
discretionary
or
non-discretionary
investors(Article
100(2)
of
the
FSCMA,
Article
11
of
the
be
appointed
non-Korean
as
such
investment
advisor
person.
is
Such
also
required
duly-registered
to
use
an
Such a non-Korean
discretionary
investment
advisors
conducting
their
- 192 -
which
such
non-Korean
investment
advisors
can
provide
local
governments,
the
BOK,
certain
financial
- 193 -
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and
newly
proposed
bill
on
Capital
Market
for
[Research
Financial
on
Law,
Financial
Seoul
Law
National
System
University,
Improvement
(2002).
Due
to
in
the
Act
on
Capital
Market
and
Investment
- 194 -
Eun Hou Song, Dong Wuk An, The Investor Protection Regime of
the Financial Investment Services and Capital Markets Act of Korea,
(2010), Korea University Law Review, Vol. 7, Korea University
Financial
Services
Commission.
(2009,
March
9).
[The
basic
and management plan of financial investment service license Second stage] (Press Release).
Financial Services Commission.
FSA Handbook
Yoon
Mo
Chung,
(2011).
Analysis
of
the
Investment
- 195 -
91-141
Jung, S. (2005). [Comment on concept of securities - Focusing on
derivatives-linked securities]. [KRX Review], 7, 3-20.
Kim, K. S. & Jung, S. (2010). [Capital market law](2nd ed.). Seoul,
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Korean
Securities
Law
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(2009).
[Capital
market
- 196 -
[2012 Capital