Investment regulation – South Korea

Investor Registration certificate (IRC)

Before investing in securities in Korea, a extraneous investor will need to obtain an IRC issued by the Financial Supervisory Service ( FSS ). This is because the IRC is required for open :

  • A cash account, for securities investments, with a local custodian savings bank ;
  • A securities safekeeping account with a local custodian bank ; and
  • A securities trade report with a broker.

Each holder of an IRC is recognised as a divide autonomous beneficial owner .
The IRC can be used simultaneously at any local custodian bank and/or securities company in Korea. It contains a unique identification number for each foreign investor, including the investor ’ mho mention, date of parturition or establishment, nationality and type of entity ( that is, individual, bank, common fund, and so forth ). This IRC number must be quoted whenever a foreign investor places a purchase or sell order via a broker, and the securities safekeeping score act, linked to it, must be quoted whenever a foreign investor conducts colonization at a local custodian bank .

Foreign direct investments

Under the Foreign Investment Promotion Law ( FIPL ), foreign investors, including alien companies, extraneous funds, etc., can acquire stakes in any list or unlisted korean company .
This type of investment is considered as a long-run investment. normally, the cope is conducted directly between the extraneous investor and the local ship’s company, under the guidance of a lawyer in accordance with the FIPL .
An IRC is not required for this type of investment .


With regards to the shares obtained under the FIPL :

  • Under the “Regulations on fiscal investment Business”, foreign investors are required to keep such shares, provided that they are KSD-eligible, with a local custodian at the KSD.
  • Physical non KSD-eligible shares can be held in safekeeping in the vaults of a local custodian bank.
  • A delivery of such shares outside Korea is not allowed. Exceptions to this are when the Financial Services Commission approves the delivery and the shares are bearer shares.

Disclosure rules

extraneous investors are obliged to file a disclosure report with the Ministry of Commerce, Industry and Energy ( MOCIE ) on any shares, whether listed or unlisted, obtained under the FIPL. In summation to that, the same disclosure rules as for IRC investments, besides apply on list shares obtained under the FIPL ( see “ disclosure requirements – South Korea ” ) .

IPO and Lock-up period

After an IPO, shareholders of pre-IPO shares under the FIPL can trade newly listed shares on the substitution or off-market .
A lock-up menstruation is applied to prevent the largest shareholders and consort persons from making unfair capital gains once the shares are listed. The lock-up period lasts, as follows :

KOSDAQ market : Six months from the first gear list date
KOSPI market :

Six months from the inaugural list date

Holding restrictions

foreign investors are allowed to invest in the korean equity securities market without any restrictions. The only exceptions are a belittled number of companies of national importance and some industries ( such as aviation, communication and circulate ) where limits ranging from zero to 49.99 % use .
For KRX KOSPI listed stocks, see : hypertext transfer protocol : //
For KRX KOSDAQ listed stocks, see : hypertext transfer protocol : //
The korean politics and the FSC establish and monitor the aggregate and individual limits of fairness securities owned by foreign investors through the Foreign Investment Management System .

Foreign Investment Management System (FIMS)

A foreign investor trade in shares subject to ownership limits must report trades in the above-listed securities to the FSS via the FIMS. The FIMS is a computer system connecting the FSS with license securities companies. such trades are automatically reported via the FIMS by the securities companies on behalf of the foreign investor .
The main functions of the FIMS are :

  • Reporting all trades placed by foreign investors to the FSS;
  • Pre-monitoring trade orders of shares with foreign ownership limits.

leverage orders in listed shares that are submit to foreign possession limits and cause the aggregate and individual alien possession limits to be exceeded will be blocked mechanically by the FIMS. Sales orders of shares that were not reported to the FSS when purchased will be blocked and can not be placed in the market .

Exceptions to foreign ownership limits

foreign investors are, as exceptions, allowed to acquire shares exceeding the aggregate foreign ownership terminus ad quem when :

  • The acquisition is a direct foreign investment;
  • The acquisition is through the conversion of foreign depository receipts into ordinary shares;
  • A Korean investor changes nationality to a foreign nationality;
  • A foreign investor treated as a Korean national for investment purposes is no longer treated as a Korean national;
  • Such shares are acquired:
    • Through the exercise of rights from securities issued overseas;
    • Through the exercise of rights from convertible bonds, bonds with warrants and exchangeable bonds;
    • Through the exercise of rights as a shareholder;
    • As a gift or inheritance;
  • A foreign legal entity acquires the shares due to a merger;
  • The acquisition is allowed by the FSC.

alien investors that acquire shares and exceed the aggregate extraneous ownership limits are required to sell the excess shares within three months of their acquisition and will be restricted in exercising their vote rights. Any other entitlements, such as dividend payments, corporate actions, bonus issues etc., remain valid .
alien investors that acquire shares and exceed the extraneous ownership limit will be punished by a force sale of the contribution, withdrawal of the IRC approval, or any other measure deemed allow by the FSS .

Conversion into shares with foreign ownership limits

The watch instruments can be converted into shares with extraneous possession limits :

  • Depository receipts (DRs)
    DRs are included in the foreign ownership calculation and the foreign ownership level will not change if conversion to original shares occurs. No restriction is applied to the conversion of DRs to ordinary shares.
    Upon conversion of the DRs into shares and settlement of the conversion, the foreign investor is able to place a sell order for the shares. It is not possible to place the sell order before final settlement of the conversion as the FIMS blocks trades that would cause a breach of the foreign ownership limit.
  • Overseas convertible bonds, exchangeable bonds and bonds with warrants
    Foreign investors will only be allowed to exercise their rights to convert such provided that the conversion does not exceed the foreign ownership level.


Shares include :

  • Voting shares;
  • Certificates representing the right to subscribe for new voting shares;
  • Bonds convertible in voting shares;
  • Bonds with warrants with respect to voting shares;
  • Preference shares are normally excluded unless they have been connected with voting rights;
  • Exchangeable bonds;
  • Derivative instruments.

A defy of shares is defined as shares held on the investor ‘s account and any rights to take delivery of such shares ( that is, under the terms of a sale and purchase agreement, options, etc. ) .

Cooling-off period in relation to the debt instrument to report brink crossings

The beginning time that an investing is reported as being for the determination of exercising influence over the management, there is a cooling-off period that starts from the deal date and runs until five business days after the reputation date, during which the investor will be suspended temporarily from exercising voting rights and from acquiring far shares. The cooling-off period besides applies to subsequent reports ( for example, for changes of 1 % or more to the holding ) that are reported for the purpose of exercising influence over the management .
Neither initial report nor subsequent report that states the aim as a simpleton portfolio investment is capable to the cooling off period. In alight of the above, when an investor changes the purpose of the investment from exercising influence over the management to a simple portfolio investment and then back to exercising influence over the management, reporting the latter would result in a further five-day cooling-off time period.

overall, the cooling-off period excludes the day the investor files a report and non-business days in South Korea, which include populace holidays, Saturdays and Sundays .
bankruptcy to comply with the cooling-off period requirements may result in the suspension of the vote rights of the equity securities and an ordain for the disposition of the non-complying equity securities .

disclosure requirements

For details of the local domestic disclosure requirements, please mention to the disclosure requirements – South Korea .

reservoir :
Category : Finance

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