On January 28, 2019, the Ministry of Justice and the Financial Services Commission (“FSC”) published the draft Enforcement Decree to the Act on Electronic Registration of Stocks, Bonds, etc. (the “Proposed Enforcement Decree”).

The Proposed Enforcement Decree follows the enactment of the Act on Electronic Registration of Stocks, Bonds, etc. on March 22, 2016 (the “Act” and together with the Proposed Enforcement Decree, the “Law”).  The electronic securities system aims to de-materialize physical securities and to enable the issuance, distribution and exercise of rights to securities through an electronic securities registry.  

According to the Proposed Enforcement Decree, the electronic securities system will become operational on September 16, 2019.

The new system is designed to enable parties to evidence ownership and rights to securities within a short time frame and to achieve efficiency and convenience in managing transactions and exercising rights related to such securities.

Details:

Below is a summary of key aspects of the proposed electronic securities system.

1. Scope of securities

Securities which require mandatory registration are listed securities, beneficiary certificates of investment trusts, and other securities designated by the FSC (the “Mandatory Registration Securities”).  

Mandatory Registration Securities that have already been issued as of the implementation date of the electronic securities system (the “Global Electronic Registration Conversion Securities”) will be automatically moved to the electronic securities system on September 16, 2019, the date on which the Law goes into effect.  

Issuers may also elect to electronically register certain securities, which are not categorized as Mandatory Registration Securities.   

Securities which have been electronically registered can only be issued through licensed electronic securities registrars (i.e., physical securities can no longer be issued).  The KSD is recognized as a licensed electronic securities registrar.  

2. Legal effect 

The person or entity registered in the electronic securities registrar’s account will be deemed to hold the title and all rights to the registered securities in the account.

Any person who acquires title or rights to electronic securities in good faith, without gross negligence, from the registered person or entity recorded in the account will be deemed to have valid legal title or rights to the relevant securities.

Any transfer of, or creation or release of a pledge over the electronic securities will have legal effect only when the relevant actions affected between the accounts is recorded in the electronic securities registry.  

Registration and deregistration of assets in trust will be legally perfected upon electronic registration of such legal status in the electronic securities registry.  

3. Exercise of rights

A holder may exercise its rights over electronic securities through the electronic registry, or by way of a certificate of ownership or a notice of details of ownership.  

A holder may obtain a certificate of ownership, similar to a title deed, evidencing title to the electronic securities from the electronic securities registrar.  

Holders of these certificates may seek to enforce their rights directly against the issuer.  Alternatively, a holder may request an account management institution to notify the issuer of the details of the holder’s rights to the electronic securities.

Significance:

In light of this upcoming major change to the securities deposit system, holders of securities subject to electronic registration should note important details so as to ensure a seamless migration to the new system.