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Newsletter | December 2013
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SECURITIES |
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Amendments to the Enforcement Decree of the FSCMA and the Regulations on Financial Investment Business |
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The amended Financial Investment Services and Capital Markets Act (the "FSCMA") was promulgated on May 28, 2013 and took effect as of August 29, 2013. As a follow-up measure, the Enforcement Decree of the FSCMA and the Regulations on Financial Investment Business were also amended. The following is a summary of the amendments.
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Investment Bank: In order for a securities company to qualify as an investment bank that can conduct corporate lending and other new businesses, it must have a minimum equity capital of KRW 3 trillion and satisfy other requirements. Additionally, in principle, its corporate lending must be limited to 100% of its equity capital.
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Alternative Trading System (the "ATS"): The amendment sets forth certain approval requirements for establishing an ATS, and also provides price determination mechanisms, such as specific standards for competitive bidding and best execution rules. Additionally, the amendment prohibits certain risky instruments from being traded through the ATS.
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Multiple Exchanges: The amendment abolishes a single statutory exchange system so now it is possible for multiple exchanges to co-exist. In order to establish a new exchange, one must satisfy certain approval conditions, undergo regulatory approval procedures, and comply with a “Chinese Wall” requirement aimed at preventing conflicts of interest, etc.
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Regulation of Funds: The amendment permits an investment advisor to advise on or discretionary investment manager to manage real estates and real estate-related rights which go beyond the previous scope of manageable assets based on financial investment products. Investment advisors and discretionary investment managers can also receive performance-based compensation in limited situations, subject to certain conditions. Separately, small-sized funds can be merged through a simplified corporate process by being exempt from the requirement to obtain an approval at their general investors' meetings, etc.
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Reporting Obligation for Holding Listed Derivatives: One must file a report for holding large volumes of listed derivatives if the concerned listed derivatives are based on KOSPI 200. This reporting obligation is triggered when an investor holds 10,000 or more outstanding contracts based on KOSPI 200, irrespective of whether the contracts are for capital gains or hedging purposes. After filing the initial report, the filer must submit an update report if there is a change of 2,000 or more contracts.
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Regulation of Credit Rating Company: Credit rating companies will now be regulated by the FSCMA instead of the Act on Usage and Protection of Credit Information. Accordingly, the amendment introduces various matters concerning the approval or operation of a credit rating company.
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