Guide to Foreign Investor Registration & Foreign Equity Purchase

Transcription

1 Guide to Foreign Registration & Foreign Equity Purchase 1. Foreign Registration Registering as a Foreign Foreign investors must register with the Financial Supervisory Service before buying or selling securities that are traded at Korea Exchange. When the registration is completed, the FSS issues Registration Certificate (IRC) that must be presented to a licensed local securities company for securities trading. Foreign residents or entities that can verify their residence or place of business in Korea with appropriate documentation may be deemed domesticequivalent investors and exempt from registration (national treatment). More specifically, foreign nationals or residents who are employed by a business located in Korea and foreign-incorporated entities with the main office of business in Korea as well as local branches or other similar places of business of foreign companies qualify as domestic-equivalent investors. (Article 7-10, Regulation on Supervision of Securities Businesses) s Subject to Registration Following investors must register with the FSS for an IRC: (1) a foreign national who has not maintained a place of adobe or a mailing address in Korea for at least six months; (2) foreign government entities; (3) foreign municipal government entities; (4) foreign public corporations and agencies; (5) foreign-incorporated companies; (6) international organizations such as IMF, IBRD, ADB, and IFC that are created under international treaties, and (7) other investors as provided for in the enforcement decree of the Ministry of Finance and Economy. Korean nationals with a permanent residence permit outside Korea and foreign nationals who have established residence in Korea for at least six months need not register for an IRC. Companies (including subsidiaries) incorporated by Korean nationals outside Korea under foreign law are foreign entities and thus must register with the FSS for an IRC

2 (Article 7-5, Regulation on Supervision of Securities Businesses) (Article 2, Securities and Exchange Act) Exemption from Registration Exemption from registration may be granted to a foreign investor who: (1) sells stocks that were acquired by exercising rights attached to securities that were floated overseas within three months from the date of the acquisition, (2) acquires or sells stocks through the OTC market in accordance with the foreign direct investment provisions of the Foreign Investment Promotion Act; OTC trading is allowed for direct investment, but all such transactions must be reported ( Report on Acquisition/Transfer of Listed Securities ) promptly to the FSS; or (3) is a domestic-equivalent investors, acquires from a foreign intermediary Korean won-denominated bonds that have been sold to overseas investors, or purchases government-issued Foreign Exchange Stabilization Bonds. (Article 7-19, Regulation on Supervision of Securities Businesses) Rejection of Registration Registration application may be rejected if the FSS determines that the registration applicant: (1) has no nationality or holds dual citizenship; (2) has not fulfilled the two-year waiting period following the revocation of a previously approved registration; (3) submits registration/supporting documents that contain false or omitted information, or (4) files two or more registration applications or files a registration application using an unlawful means. (Article , Regulation on Supervision of Securities Businesses) Cancellation & Suspension of Registration Registration may be suspended or cancelled if the FSS determines that: (1) disqualifying causes exist after the registration is completed; - 2 -

3 (2) the registered investor fails to comply with the applicable regulations or an order issued by the FSS; (3) the registered investor requests cancellation of the registration, or (4) the registered investor fails to complete and settle a transaction within five days from the settlement date. (Article , Regulation on Supervision of Special Provisions for Registration An IRC may be obtained in the name of a foreign financial services company if the company: (1) is an overseas branch of a local securities company; (2) is a securities company located in Japan as provided for in the Guideline on the Remittance of Japanese s Securities Funds; (3) applies for an additional IRC in order to separate its investment assets into proprietary and client assets, or (4) seeks to transact bulk orders from an investment fund group. A foreign depository institution that seeks to acquire shares associated with depositary receipts (DRs) issued for overseas investors must apply for an IRC for each class/issue of the Korean shares in addition to an IRC it may have for investing in Korean securities. Application for an IRC under the special provisions for registration must be accompanied by appropriate supporting documents. (Article 7-5, Detailed Provisions of Regulations on Supervision of Securities Business) Registration Application Procedure Registering with the FSS in person A foreign investor who wishes to register with the FSS in person may do so by submitting to the FSS the completed registration application forms along with official documents that authenticate the lawful identity of the investor. For an individual investor, a passport or any other equivalent document issued by a foreign government stating the name, the date of birth, and other personal information of the applicant may suffice. For a legal entity, a certificate of incorporation and other similar documents issued by a foreign government agency or a regulatory authority stating the name of the entity, the date of incorporation, the name of the issuing authority, and the date of the issuance may suffice

4 Registering with the FSS through a local agent Registration may also be filed electronically through a local agent who submits the IRC application and other necessary documents (including power of attorney) to the FSS through the Financial Information Exchange System ( FINES ). The IRC is then issued electronically through the FINES. What is a local agent? A foreign investor may designate as its local agent any one of the entities listed below to represent itself in exercising its rights on the securities acquired and in handling other related matters: (1) Korea Securities Depository; (2) foreign exchange banks as provided for in the Foreign Exchange Transaction Act; (3) securities companies, 4) investment trust companies as defined in the Asset Management Business Act; (5) futures companies as defined in the Futures Transaction Act, and (6) internationally recognized securities depository institutions. No other person or entity may be appointed as a local agent by a foreign investor. [Reference 1] Introduction of Electronic Registration of Foreign s (June 1, 2007) Prior to the introduction of electronic registration for foreign investors on June 1, 2007, registration application and the supporting documents had to be submitted to the FSS in person either by the investor or his local agent. It typically took three to four days to process the registration application and issue an IRC. Some foreign investors found the procedure needlessly timeconsuming or inconvenient. The FSS introduced electronic registration for foreign investors on June 1, 2007, to make the IRC issuance process more efficient and less timeconsuming. The new system, which utilizes FINES used by the FSS and financial institutions to exchange information, is open to financial institutions that may act as a local agent for foreign investors. All IRC application and the related documents can be filed electronically by financial institutions via FINES to the FSS. Likewise, the FSS sends out the IRC electronically to the financial institutions. With the introduction of electronic registration, the turnaround time for an IRC has been shortened from up to four days to up to four hours, a significant timesaving for foreign investors. The new system completely eliminates the need for in-person visit to the FSS and enables changes to and cancellation of an IRC

5 Foreign Registration and IRC Issuance Before Electronic Registration Foreign 1. Appoint an agent Agent (Financial Institution) 2. Apply for IRC with supporting documents 3. Registration 5. Open accounts (IRC submitted) FSS Broker 4. IRC issued twice a week Foreign Investment Management system (FIMS)* * The Foreign Investment Management System (FIMS) is used by the FSS to check and monitor stocks that have an aggregate foreign ownership limit. The system also provides statistical data related to foreign investors stake in listed stocks. After introduction of the on-line system 3. Registers application Person in charge 4. Approves a Foreign 1. Apply for foreign investor s IRC 2. Transfer of information issues IRC FINES system * FSS (ISIS) (Proxy) 6. IRC is issued (can be 5. Sends IRC printed in the system) FIMS On-line 5. Sends registration information The FSS introduced FINES in August, 2006, to improve supervisory efficiency and help financial institutions reduce operating costs with a one-stop service for exchange of financial data/statistics with the FSS

6 2. Restrictions on Foreign Share Ownership Ceiling on Foreign s share Ownership A ceiling on share ownership by foreign investors may be imposed on listed companies that are designated public-purpose companies by the Ministry of Finance and Economy (MOFE) or otherwise restricted under other acts (article 199-2, Securities and Exchange Act). As of June 30, 2007, KEPCO was the only MOFE-designated public purpose company. Foreign ownership of shares of 23 other listed companies (including KT and KOGAS) is also restricted under other acts. As of June, 2007, the ceiling on a public-purpose company (KEPCO) for foreign investors was 40% of the total outstanding shares. The ceiling on a single foreign investor in a public-purpose company is subject to restriction as provided for in the company s articles of incorporation. For other restricted companies, the ceiling is set by the applicable acts. (Article 7-6, Regulation on Supervision of. The 40% ceiling on foreign equity ownership in a public-purpose company (KEPCO) may not be applicable where: (1) a foreign investor acquires shares of the company through direct investment; (2) a foreign depository institution acquires shares of the company through purchase of the company s DRs issued for overseas investors; (3) a Korean national becomes a foreign national; (4) a foreign investor with a domestic-equivalent foreign investor status loses the domestic-equivalent status; (5) a foreign investor acquires shares by exercising rights attached to securities issued overseas; (6) a foreign investor acquires shares by exercising rights or options attached to convertible bonds, bonds with warrant, exchangeable bonds, and other securities with similar conversion options; (7) a foreign investor acquires shares by exercising rights as a shareholder; (8) a foreign investor acquires shares through inheritance, gift, or bequest; (9) a foreign investor (an incorporated entity) acquires shares as a result of a merger, or (10) circumstances arise, e.g., exercise of legally enforceable rights, that make it proper or unavoidable for the FSS to approve share acquisition. No exception is provided for equity ownership in the other 23 restricted companies

7 [Reference 2] List of Companies with Foreign Ownership Restrictions (May 31, 2007) Applicable Laws & Regulations Securities and Exchange Act (Act 203) Telecommunications Business Act (Act 6) Wire Communication Wireless Communication Act on Privatization of Public Enterprises (Act 18, 19) Limit by Law Total Single Limit by Articles of Incorporation Single Total Companies Listed in KRX Stock Market Companies Listed in KRX KOSDAQ Market 40% - - 3% KEPCO - 49% % LG DACOM KT SK NETWORKS SK TELECOM KTF HANARO TELECOM EYESVISION LG TELECOM - 15% 30% - KOGAS - 0% SBS YTN Broadcasting Act (Act 14) 49% On Media CJ Homeshopping GS Homeshopping Qrix Communications Dongjak Cable & Communications Hanvit I & B Computer Communication System Korea Business News Co. Newspaper Act (Act 13) Aviation Act (Act 6) 30% Daily Sports The Sports Seoul % Korean Air Asiana Airlines Total number of companies

8 Exchange Trading and Exceptions Foreign investors must as a rule engage in securities trading through Korea Exchange (KRX), i.e., securities traded at either the KRX Stock Market or the KRX KOSDAQ Market. (Article , Decree) Exceptions to exchange trading may be allowed (article 7-8-1, Regulation on Supervision of the where a foreign investor: (1) acquires stocks by direct investment or disposes of them thereafter; (2) trades securities pursuant to articles through and of Regulation on Supervision of Securities Business; (3) sells stocks by exercising shareholder s appraisal right pursuant to article 191 of the Securities Exchange Act; (4) acquires or sells stocks through a tender offer pursuant to article 21 of the Securities Exchange Act; (5) trades listed stocks below the trading unit as provided for in the Business Regulation of the KRX (where a securities company is the counterparty); (6) trades with other foreign investors KRX-listed stocks whose trading reaches or exceeds the limit set for foreign investors pursuant to articles and of Regulation on Supervision of Securities Business (brokered by a securities company); note that trading among foreign investors is barred for (i) shares acquired by a domestic-equivalent foreign investor who subsequently loses the domestic-equivalent status, or (ii) sale of stocks in excess of the acquisition limit as provided for in article of the Regulation on Supervision of Securities Business; (7) acquires stocks (as an overseas depository institution) associated with DRs issued overseas; (8) acquires stocks by subscribing to an overseas public offering; (9) trades repurchase agreements; (10) trades listed bonds with or through a securities company; (11) trades listed beneficiary certificates; (12) engages in lending and borrowing of securities through intermediation by Korea Securities Depository (KSD), the Korea Securities Finance Corporation (KSFC), or securities companies; note that lending and borrowing of issues subject to acquisition limits as provided for under article and of Regulation on Supervision of Securities Business applies is permitted only among foreign investors; (13) trades securities through the electronic communications network (ECN); (14) trades securities through the setup or redemption of a listed index portfolio investment; (15) trades securities through domestic public tender offer; (16) acquires stocks through the exercise of rights or conversion options of an equity-linked warrant

9 Where a representative of an investment group engages in a bulk trade in the representative s own name, the representative may transfer the acquired stocks to the foreign investors of the investment group by the following day (article 7-8-2, Regulation on Supervision of. In such cases, foreign investors receiving the transferred stocks are restricted to those whose representative investment manager has reported to the securities company before the transaction takes place. Securities companies may distribute the traded stocks by the agreed means (e.g., transaction volume weighted average price) between the investment management company and the investors group. Securities companies are required to maintain a record of the distributed securities among the foreign investors in an investors group. 3. Reporting of Off-Exchange Trading Where a foreign investor acquires or transfers KRX-listed securities from outside the exchange pursuant to Regulation on Supervision of Securities Business, specific details of the transaction must be reported the FSS through the Foreign Investment Management System or with a written form as provided for under the of the Regulation on Supervision of Securities Business (article 7-3-1, ). Shares of a listed company acquired in the primary market must also be reported to the FSS (Article 7-3-2, ). See appendix 1 for further information

10 Appendix 1 Reporting Under Foreign Investment Management System Transaction Stock acquisition and disposition by tender offer pursuant to article 21 of the Act (Article , Regulation on Supervision of Stock trading below the trading unit pursuant to Business of the Stock Market (Article , Regulation on Supervision of Trading among foreign investors of KRX-listed stocks that reach or exceed the investment ceiling for all foreign investors (Articles and 7-6-3, , Regulation on Supervision of Stock acquisition by an overseas depository institution through DRs or those of trading stocks (Article , Regulation on Supervision of Trading of listed bonds where the counterparty is a securities company or trading brokered by a securities company (Article , Regulation on Supervision of Securities lending and borrowing through intermediation of KSD, KSFC, or securities companies (Article , Regulation on Supervision of Stock acquisition through exercise of rights attached to an equity linked warrant (Article , Regulation on Supervision of Stock acquisition by direct investment and disposition thereafter (Article , Regulation on Supervision of Stock acquisition by exercising rights attached to convertible bonds, bonds with warrant, exchangeable bonds, DRs, DRs of trading stock, other similar securities that are issued abroad by a domestic company (Article , Regulation on Supervision of Stock acquisition by exercising rights attached to convertible bonds, bonds with warrant, exchangeable bonds, stock options (Article , Regulation on Supervision of Person with Reporting Liability Foreigner Foreigner Reporting Agent Securities Companies KSD Korea Securities Finance Corporation Relevant Regulations Article , Standing Proxy Article , FIMS Comments Report of Acquisition or Transfer outside Exchange (Form No. 12)

11 Stock acquisition by exercising rights as a shareholder (Article , Regulation on Supervision of Stock acquisition through inheritance, gift, or bequest (Article , Regulation on Supervision of Stock acquisition by a foreign corporation through merger (Article , Regulation on Supervision of Other cases deemed proper or necessary by the FSS (Article , Regulation on Supervision of Stock sales by shareholder s appraisal right as prescribed by article 191 of the Act (Article , Regulation on Supervision of Acquisition of underlying stocks offered and subscribed overseas for listing in foreign securities markets (Article , Regulation on Supervision of Trading of stocks by means of public tender to the public of the domestic country (Article , Regulation on Supervision of Acquisition of listed stock from the primary market by rights issue, bonus issue, stock dividend, merger, etc. Acquisition of listed stock offered and distributed from the primary market by means of subscription Stock acquisition from the primary market by other means. (e.g., private placement) A foreign investor must report to the FSS the status of his trading and account opening details in relation to listed securities A report on the status of a foreign investors trading of short-term financial products by financial institutions concerned by each type as of the end of each month by the fifteenth (15 th ) day of the following month A report on the status of custody of foreigners owned securities as of the end of each month by the fifteenth (15 th ) day of the following month Foreigner Foreigner Foreigner Foreigner Financial Institution Custodian KSD Article , Lead Manager Article , Standing Proxy Article , Article , -The Korea Federation of Banks -The Korea Securities Dealers Association -Korea Merchant Banks Association -The Korea Federation of Banks -The Korea Securities Dealers Association -Asset Management Association of Korea Article , Article , FIMS FIMS (Form No. 12) FIMS (Form No. 15) (Form No. 15)

12 A newly listed company and a listed company that merge with another company must file with the FSS a report on the status of foreign investors ownership of shares of the company concerned Where the ratio of direct investment changes due to disposition of stocks in the KRX, the foreign investor must have the concerned securities company report to the FSS. Where the ratio of direct investment changes due to acquisition/transfer outside the KRX, a foreign investor must have the foreign-invested enterprise report it to the FSS. The status of direct investment as of the end of fiscal year for foreign-invested enterprises must be reported. A corporation that restricts share ownership by foreign investors in accordance with other laws or the company s articles of incorporation must report the contents. The status of foreigners securities under custody should be reported within 10 days of the end of each quarter. A report on the outstanding DRs, DRs of trading stock, new/revised/terminated depositary or custody contracts by the twentieth (20 th ) day of the following month of each quarter A report on the listed stock movements between the markets at the end of each month; by the tenth (10 th ) day of the following month if the stock is dual-listed on an overseas stock exchange A report on the status of execution and revocation of the standing proxy contract within 10days of the end of each quarter Listed Company Foreigner Foreigner Foreigner Listed Company Foreigner Overseas Depository Article , Securities Company Article , Listed Company Article , Listed Company Article , Article , Custodian Article , Article , KSD Article , Foreigner Standing proxy Article , (Form No. 16) (Form No. 17) (Form No. 17) (Form No. 17) (Form No. 18) (Form No. 21) (Form No. 19)

13 Appendix 2 Provisions on Foreign Investment SECURITIES AND EXCHANGE ACT Article 203 (Restrictions on Acquisition of Securities by Foreigners) (1) Acquisition of securities by a foreigner or foreign corporation, etc. may be restricted by the provisions of the Presidential Decree. (2) With respect to an acquisition of stocks of a public corporation by a foreigner or foreign corporation, etc., it may be restricted separately under the conditions as prescribed by the articles of association of the public corporation in addition to a restriction pursuant to paragraph (1). (3) Any person who has acquired stocks in contravention of the provisions of paragraph (1) or (2), may not exercise his voting rights to the stocks, and the Financial Supervisory Commission may order a correction to the person who acquired stocks in contravention of the provisions of paragraph (1) or (2). ENFORCEMENT DECREE OF THE SECURITIES AND EXCHANGE ACT Article 87-2 (Restrictions on Acquisition of Securities by Foreigners or Foreign Corporations, etc.) (1) Deleted. (2) Where a foreigner (referring to an individual who does not have domicile or residence in Korea for six months or more; hereinafter the same shall apply) or a foreign corporation, etc. acquires securities under Article 203 (1) of the Act, the Financial Supervisory Commission may impose a necessary restriction on types of such securities and limits by category of business or item. (3) When a foreigner or a foreign corporation, etc. intends to make a transaction in listed securities or KOSDAQ-listed securities, such a transaction shall be made on the securities market or the KOSDAQ market: Provided, That the same shall not apply to cases approved by the Financial Supervisory Commission. (4) Where a foreigner or a foreign corporation, etc. makes a transaction in securities through a securities company, such a securities company shall report the contents of such transaction to the Financial Supervisory Commission, as determined by the Financial Supervisory Commission. REGULATION ON SUPERVISION OF SECURITIES BUSINESS 7-5. Purpose (1) The purpose of the provisions of this Chapter is to prescribe the matters necessary for the securities trading by foreigners pursuant to Article 203 of the Act and Article 87-2 of the Decree. (2) The terms used in this Chapter shall have the same meanings given to them in the following : 1. The term "foreigner" refers to an individual who holds foreign nationality, having neither his address nor place of abode for more than six months in Korea, and a foreign corporation pursuant to Article 2 paragraph (16) of the Act. 2. The term "foreigner under national treatment" refers to any foreigner in the following. However, non-residents falling under Article 10 paragraph (2) subparagraphs 1, 2 and 6 of the Decree of the Foreign Exchange Transaction Act shall be excluded :

14 a. Any person who works in domestic business office or other representative office or who engages in business activities in Korea; and b. Any foreign corporation whose main office is located in Korea; or domestic branch, liaison office, sub branch or any form of office of a foreign corporation. 3. The term "direct investment" means that any foreigner owns stocks pursuant to Article 2 paragraph (1) subparagraph 4 item a of the Act on Promotion of Foreigners' Investment. 4. The term "stock investment" refers to the acquisition of any stock by the method other than the direct investment by foreigners. 5. The term "DR" refers to a receipt for the new stocks and treasury stocks of a domestic corporation held in Korea as underlying securities, which is issued by an overseas depository institution in a foreign country 6. The term "DR of trading stock" refers to a receipt for the stocks in trading issued by a domestic corporation held in Korea as underlying securities, which is issued by an overseas depository institution in a foreign country. 7. The term "overseas securities" refers to convertible bonds, bonds with warrant, exchangeable bonds, DRs, DRs of trading stock, and other documents or certificates similar thereto. 8. The term "financial institution" refers to any institution as prescribed in Article 38 of the Act on Establishment of Financial Supervisory Organizations. 9. "Investment group" means foreigners (limited to foreign juridical persons) who manage multiple investments for foreigners in accordance with statutes or contracts. 10. Other terms used herein this Chapter shall be governed by the stipulations of the Act, the Decree, and the s Acquisition Limit (1) No foreigner shall acquire the stocks of public corporations pursuant to Article 199 paragraph (2) of the Act (hereinafter referred to as "public corporation") for his own account, regardless of the title thereof, in excess of the acquisition limits prescribed in the following: 1. Acquisition limit by issue per foreigner: the limit prescribed in the Articles of Incorporation of the corporation concerned ; and 2. Acquisition limit by issue for all foreigners: 40/100 of the total issued shares of such issue. (2) Any foreigner may, in any of the following cases, acquire the stocks of public corporations in excess of the acquisition limits under paragraph (1) : 1. Cases where any foreigner acquires stocks by direct investment; 2. Cases where any overseas depository institution acquires underlying stocks in relation to the issuance of DRs or DRs of trading stock; 3. Cases where any Korean national becomes a foreigner; 4. Cases where any foreigner under national treatment loses his qualification for national treatment; 5. Cases where any owner of overseas securities acquires stocks through the exercise of rights; 6. Cases where any owner of convertible bonds, bonds with warrant, and exchangeable bonds acquires stocks through the exercise of rights; 7. Cases where any foreigner acquires stocks through the exercise of rights as a shareholder; 8. Cases where any foreigner acquires stocks through inheritance, gift, or testamentary gift; 9. Cases where any foreign corporation acquires stocks by merger; 10. Other cases deemed by the Governor, which are unavoidable, such as exercise of rights, etc, (3) In case other statutes otherwise restrict the acquisition of stocks by foreigners, such acquisition shall be governed by such statutes. (4) The FSC may, when it deems necessary for the public interest or for the stabilization of securities market and industrial policy, otherwise determine the acquisition limit by industry sector or issue. (5) No foreigner shall acquire, by the method of trade, bonds with warrants of the issue whose acquisition limit pursuant to the provisions under paragraph s(1). and (3) is fully utilized as of the acquisition date

15 (6) Any foreigner who has acquired voting stocks in excess of the acquisition limit per foreigner pursuant to the provisions under paragraph (2)3 through 10 shall sell such excess portion within three months from the acquisition date Ceiling on Acquisition Pertaining to Stock Option (1) A foreigner may exceed acquisition limit notwithstanding the provisions of Article 7-6 paragraphs (1) and (3) to the extent stocks are acquired by exercise of call option or put option allocation, at which time the foreigner shall dispose of the excess until the next day (or the next business day if holiday; the same hereinafter) after exercising the stock option. Where the foreigner does not dispose of the excess until ten minutes before the closing of the KSE, securities company shall dispose of the excess through a competitive auction under uniform price after the KSE is closed. (2) Where a foreigner becomes applicable under paragraph (1), securities company shall calculate and notify the foreigner of the amount to be disposed of by person under the following formula without delay. Amount of disposition by category and foreigner = Number of stocks acquired by exercise of call option or put option allocation Required foreigner disposition ratio In this case, disposition volume by category and foreigner shall be rounded off by the unit of minimum market transaction. (3) Required foreigner disposition ratio of the formula under paragraph (2) refers to the figures disclosed by the Governor on the date of exercise of stock option calculated by category. Required foreigner disposition ratio = [ Number of shares acquired by exercise of call option or put option allocation Marginal quantity of overall ceiling on foreign investment in the category concerned [ Calculated figures with the exclusion of differences in the number of stocks as a result of exercise of stock option or rights allocation after the closure of the KSE on the date of exercise of stock option] ] Number of shares acquired by exercise of call option or put option allocation for the category concerned. In this case, required foreigner disposition ratio shall be rounded to the fifth decimal point. (4) A foreigner may not acquire the issues concerned through the electronic over- the-counter securities brokerage company before the required foreigner disposition ratios are disclosed on the date of exercise of stock option pursuant to the provisions under Article 3. (1) A foreigner may, where he or she shall deliver shares due to exercise of call option or put option allocation, acquire stocks until the day after the exercise of equity option, notwithstanding the provisions of Article 7-6 paragraphs (1) and (3). (2) Where a foreigner becomes applicable under paragraph (1), securities company shall confirm the foreigner's excess holding without delay, and shall conclude agreement with the foreigner before initiating stock option transactions, expressly allowing disposition of the excess by the securities company Ceiling Pertinent to Exchange Traded Fund(beneficiary certificate type) or Exchange Traded Fund(mutual fund type) <Added October 2, 2002> (1) A securities company shall deliver details of an application for the creation of, or redemption for, Exchange Traded Fund via stock baskets to the Korea Securities Depository on the day it is made by foreigner, and the Korea Securities Depository in turn shall immediately gather and report it to the Governor through the foreign investment management system (electronically operated and the collective management of foreigners' investment in the listed securities and KOSDAQ registered securities of which is consigned by the Governor to the Korea Securities Computer Corporation). (2) In the acquisition of stocks by the redemption of Exchange Traded Fund, a foreigner may exceed the ceiling placed on the acquisition, notwithstanding the provisions of Article 7-6 paragraphs (1) and (3), whereby the securities company in receipt of the request for

16 redemption from the foreigner shall dispose of the stocks in excess of the ceiling on the date of the redemption (or the date of the receipt of the stock baskets; the same hereinafter). (3) Where a foreigner is applicable under the latter provisions of paragraph (2), the securities company shall calculate the traded volumes that shall be disposed of by foreigner in accordance with the following formula and report immediately to the foreigner on the results; [Disposed volume by foreigner = (Number of stocks acquired by redemption of Exchange Traded Fund by foreigner) x (Required disposition ratio by foreigner)] The disposed volume by foreigner shall be rounded off at the minimum trading volume of the stock market. (4) The required disposition ratio by foreigner under the formula provided under paragraph (3) means the figure resulting from the calculation by the following formula and disclosed on the date of redemption by the Governor; [Required disposition ratio by foreigner = [(Stock volume acquired by redemption of Exchange Traded Fund by foreigner) - (Stock volume for the creation of Exchange Traded Fund for which stocks are paid by foreigner) - (Reserve for stock investment by foreigner [Volume calculated in view the stocks acquired after the closing of the KSE and OTC intermediaries (including trading after hours) on the day following the date of redemption for Exchange Traded Fund])] / [Stock volume acquired by redemption of Exchange Traded Fund by foreigner]] The required disposition ratio by foreigner shall be rounded off to the 6th decimal point. (5) The securities company shall conclude an agreement on the availability of willful disposition of the stocks in excess of the ceiling on the acquisition as stipulated under paragraph (2) with the foreigner at the time the redemption for Exchange Traded Fund is made Administration of Acquisition Limit The method of calculating acquisition limit pursuant to Article 7-6 and other matters necessary for the administration of such limit shall be determined by the Governor Restrictions on Securities Trading (1) Every foreigner shall, when intending to trade listed or registered securities, trade them through the securities market or the KOSDAQ market. However, these provisions shall not apply to any of the following cases: 1. Acquisition of stocks by direct investment and disposal thereof; 2. Acquisition of stocks pursuant to Article 7-6 paragraph (2) subparagraphs 5 to 10; 3. Disposition by the exercise of dissenter's rights pursuant to Article 191 of the Act; 4. Disposition by the subscription to the tender offer pursuant to Article 21 of the Act; 5. Trading of listed stocks below the trading unit stipulated in the Business Regulation of the KSE; 6. Trading of the issue whose trading reaches or exceeds the acquisition limit by issue for all foreigners in the case of listed or registered stocks, in accordance with Article 7-6 paragraphs (1) and (3). However, the trading between foreigners shall be prohibited in any of the following cases; a. Stocks acquired by a foreigners when he was under national treatment, who has lost his qualification for national treatment; b. Sale of stocks in excess of the acquisition limit pursuant to Article 7-6 paragraph (6). 7. Acquisition of underlying stocks by an overseas depository institution in relation the issuance of DRs or DRs of trading stock; 8. Acquisition of stocks offered and subscribed overseas for listing in foreign securities markets 9. RP trading; 10. Trading of listed bonds whose trading Party is a securities company or by the mediation of a securities company; 11. Trading of listed beneficiary certificates;

17 12. Loan transactions by the mediation of the KSD, securities finance companies, or Securities companies. However, the Issues to which the acquisition limit under Article 7-6 paragraphs (1) and (3) applies shall be limited to loan transactions between foreigners. 13. Trading of securities through the electronic over-the-counter securities brokerage company. 14. Acquisition and disposition as a result of creation and redemption of Exchange Traded Fund (2) In the case paragraph (1) subparagraph 5, any securities company shall be the counter party; in the case of paragraph (1) subparagraph 6, any securities company shall act as a broker. (3) Where a representative of an investment group has purchased stocks in bulk in his or her own name, he or she may allocate the stocks to the foreigners of his or her group until the following transaction day, in which case foreigners receiving allocation shall be limited to those maintaining accounts with the securities company standing in business transaction relation to the representative Issuance of DRs of Trading Stock Any overseas depository institution shall, when intending to acquire stocks for the purpose of issuance of DRs of trading stock, obtain the prior consent of the issuer of underlying stock. However, these provisions shall not apply to the cases of acquisition of stocks for the purpose of issuing DRs of trading stock within the quantity already converted to underlying stock, from among already issued DRs (including DRs of trading Stock) Investment Registration (1) Every foreigner shall, when intending to acquire or dispose of any of the following securities for the first time, register his personal details with the FSS, in advance: 1. Listed or registered securities (including securities newly issued by listed corporations or registered corporations); and 2. Securities offered or distributed for listing on the securities market or for registration with the KSDA. (2) Notwithstanding the provisions under paragraph (1), investment registration may not be made in any of the following cases: 1. Disposition of stocks acquired through the exercise of rights of overseas securities within three months from the acquisition date; or 2. Acquisition or disposition of stocks in relation to direct investment. However, these provisions shall not apply to the case of acquisitions on the securities market or the KOSDAQ market. (3) Where a foreigner registered to invest under paragraph 1 belongs to an investment group, the investment group may appoint a representative to declare as an investment group to the Governor. (4) Matters necessary for the method, procedure, issuance of the investment registration certificate and declaration of the investment group, etc, shall be determined by the Governor Refusal and Revocation of Investment Registration (1) The Governor may, in case any foreigner who applies for investment registration pursuant to Article 7-10 falls under any of the following subparagraphs, refuse such registration: 1. Cases where such foreigner is a person who has no nationality or dual nationality; 2. Cases where such foreigner is a person for whom two years have not elapsed since the revocation of investment registration pursuant to the provisions under paragraph (2); 3. Cases where there is any false description or omission of description in the application for investment registration or the documents attached thereto; or

18 4. Cases where such foreigner doubly applies for investment registration or applies therefor by means of false or illegal manner. (2) The Governor may, in any of the following cases, revoke the investment registration spend the effect thereof: 1. Cases where such foreigner frills under any subparagraph under paragraph (1) after the investment registration; 2. Cases where such foreigner violates this Regulation or any other order of the Governor; 3. Cases where such foreigner applies for revocation of investment registration; and 4. Cases where such foreigner fails to pay the purchasing money or sold securities in relation to the trading of securities, within five days from the settlement date Opening of Accounts Every foreigner shall, when intending to open a trading account for securities investment with a securities company, open an account separately for each class of invested securities in such manner as to be determined by the Governor Restriction on Disposition of Deposits Any foreigner may dispose of the funds deposited in a securities company, etc, only in any of the following cases; 1. Purchase of securities (including sales in the case of investment in stock index futures and options) in accordance with the types of trading accounts. 2. Payment of subscription margin, taxes, and fees related to acquired securities; 3. Transfer to the non-resident domestic currency account in his own name or in the name of designated securities company as prescribed in the Foreign Exchange Transaction Regulation; 4. Purchase of foreign currencies from securities companies; and 5. Transfer to another trading account in his own name opened with a securities company Restriction on Credit Extension Every securities company shall not extend credits to foreigners by the method of lending of securities, from among the methods of credit extension pursuant to Article 49 of the Act, for the issues to which the acquisition limit under Article 7-6 applies Custody of Securities (1) Every foreigner shall keep the acquired securities (excluding the stocks listed on foreign securities markets and the bonds registered but not issued ) in custody of the KSD, foreign exchange banks under the Foreign Exchange Transaction Act, securities companies, management companies under the Securities Investment Trust Business Act, futures trading companies under the Futures Trading Act, or internationally-recognized foreign custody institutions (hereinafter referred to as "custody institution"). However, these provisions shall not apply to the crises where it is necessary for the exercise of rights to securities or actual inspection for confirming the presence of the securities. (2) Every foreigner shall make the custody institutions under paragraph (1) the custody securities (limited to the securities eligible for deposition pursuant to Article of the Act) with the KSD. However, these provisions shall not apply to the cases acknowledged by the Governor when it conflicts with the statutes of the country of such foreigner. (3) Every foreigner shall, when subscribing to the rights offering, etc., apply to the KSD through his standing agent or trading securities company so that the KSD may recognize the details of subscription. (4) Where stocks are acquired pursuant to the provisions of Article 7-8 paragraph (1) subparagraph 8, foreign company (hereinafter, "foreign depository") conducting business that is similar to that of the Korea Securities Depository under Article

19 paragraph (1) subparagraph 3 shall deposit the stocks acquired with the Korea Securities Depository notwithstanding the provisions of paragraphs (1) and (2) Appointment of Standing Agent (1) Any foreigner may appoint a standing agent from among custody institutions under Article 7-15, and shall not have any person other than such standing agent represent or act for him in exercising the right of the acquired securities and in handling the matters related thereto. However, these provisions shall not apply to the inevitable cases acknowledged by the Governor when it conflicts with the statutes of the home country of such foreigner. (2) The standing agent appointed pursuant to the provisions under paragraph (1) shall exercise due diligence as a fiduciary with good faith for the benefit of the foreigner concerned Request for Data The FSC may request foreigners, standing agents, the Korea Securities Depository, overseas depository institutions, custody institutions, financial institutions, listed companies, and registered businesses to report on the foreigners' securities transactions and other investment information Measures in the Case of Violation (1) The FSC may, when a foreigner acquires securities in violation of Article 7-6, issue an order to dispose such securities. (2) The FSC may issue an order to the persons who violate the matters prescribed in this Chapter take corrective measures or take actions against them including revocation of investment registration Exceptions to Application (1) Article 7-6, Article 7-8, Article 7-10, Article 7-l2 to Article 7-16 shall not apply to foreigners under national treatment. (2) The provisions of the Act on Promotion of Foreigners' Investment shall apply to direct investments, except those prescribed in this Chapter, (3) Article 7-10, Article 7-12 and Article 7-15 shall not apply to the crises where a foreigner intends to acquire domestic currency bonds which are issued in Korea by a foreign corporation, and sold in overseas markets (including the case where domestic currency bonds sold in the domestic market are acquired for retirement by such foreign corporation). (4) Article 7-8, Article 7-10, Article 7-l2 and Article 7-15 shall not apply to the foreign exchange stabilization fund bonds in foreign currency issued in Korea by the Government Delegations of Power (1) The power to approve securities trading by foreigners outside the securities market and the KOSDAQ market pursuant to Article 87-2 paragraph (3) of the Decree shall be delegated to the Governor in such manner as stipulated in this Chapter. (2) The power to request report and data pursuant to Article 7-17 shall be delegated to the Governor. (3) The Governor may determine the detailed provisions necessary for the implementation of the provisions stipulated in this Chapter

20 Appendix 3 1. Acquisition/Transfer of Listed Stocks A. Acquirer/Transferee Information (1) IRC Number: (2) Name/Company Name: (3) Nationality: B. Seller/Transferor Information (1) IRC Number: (2) Name/Name of Company: (3) Nationality: C. Acquisition or Transfer Form-12 Report on Acquisition/Transfer of Listed Securities in the Over-the-Counter Market To the Governor of the Financial Supervisory Service Date of Acquisition/Transfer Stock Name (stock code or ISIN) Number of Stocks Method of Acquisition/Transfer Acquisition Price Transfer Price Remarks Notes: 1) The column for method of acquisition or transfer must be completed with relevant information pertaining to the circumstances as provided for under article of Regulation on Supervision of Securities Businesses. 2) The acquisition price of overseas securities-related shares must be the actual purchase price (not including incidental expenses such as taxes, public imposts and commissions incurred in connection with the acquisition) of the relevant overseas securities. 3) Where overseas securities-related shares are acquired, the column for remarks must be completed with the acquisition date of the relevant overseas securities and the expected date of listing. 4) Documents supporting the share acquisition must be attached. 5) Where a foreign securities depository acquires securities in order to issue depositary receipts, documents that verify the issuing company has agreed to the acquisition must be attached. No supporting documents are necessary if they have already been submitted to the FSS. Pursuant to article 7-8 of the Supervisory Regulation on Securities Businesses and article 7-3 of the Decree, I/We hereby report the acquisition/transfer of listed stocks in the over-the-counter market. MM/DD/YYYY To be signed by the foreign or the local agent or a securities company

21 2. Acquisition/Transfer of Listed Bonds A. Acquirer/Transferee Information (1) IRC Number: (2) Name/Company Name: (3) Nationality: B. Seller/Transferor Information (1) IRC Number: (2) Name/Company Name: (3) Nationality: C. Acquisition or Transfer Date of Acquisition/Transfer Bond Name Bond Code or ISIN Date of Acquisition / Transfer Face Amount (KRW10,000) Details of Acquisition/Sale Unit Price (KRW) Interest Rate (%) Acquisition/Transfer Amount Method of Acquisition/Transfer Remarks Notes: 1) If the security is a listed bond, the ISIN number (bond code) must be included. 2) Interest rate (%) must be quoted to the second decimal places; the third decimal number is to be rounded up/down to the nearest whole number. 3) The acquisition/transfer price must be the actual purchase price (not including incidental expenses such as taxes, public imposts and commissions incurred in connection with acquisition) of the listed security. 4) The column for method of acquisition or transfer must be completed with relevant information pertaining to the circumstances as provided for under article of Regulation on Supervision of Securities Businesses. 5) The column for remarks must be completed with the scheduled date of the listing, the securities company and other information as deemed necessary. 6) Documents supporting the bond acquisition must be attached. Pursuant to article 7-8 of Regulation on Supervision of Securities Businesses and article 7-3 of the Decree, I/We hereby report the acquisition/transfer of listed bonds in the over-the-counter market. MM/DD/YYYY To be signed by the foreign or the local agent or a securities company