DETAILED REGULATIONS OF THE REGULATIONS ON FINANCIAL INVESTMENT BUSINESS January 21, 2009 Amended on May 12, 2009 Jul. 6, 2009 Jul. 24, 2009 Dec. 22, 2009 Jan. 6, 2010 Apr. 9, 2010 Jul. 26, 2010 Jul. 30, 2010 Nov. 12, 2010 Dec. 22, 2010 Dec. 29, 2010 Jun. 27, 2011 Dec. 6, 2011 Dec. 7, 2011 Jan. 3, 2012 Mar. 27, 2012 Aug. 29, 2012 Oct. 30, 2012 Nov. 17, 2012 Jan. 25, 2013 PART Ⅰ. GENERAL PROVISIONS Article 1-1. (Purpose) The purpose of the Detailed Regulations herein is to provide for the matters delegated to the Governor of the Financial Supervisory Service pursuant to the Financial Investment Services and Capital Markets Act (hereinafter referred to as the "Act"), the Enforcement Decree of the Act (hereinafter referred to as the "Decree"), the Enforcement Rules of the Act (hereinafter referred to as the "Rules"), the Regulations on Financial Investment Business (hereinafter referred to as the "Regulations"), and other relevant Acts and regulations, and the matters required for the execution thereof. Article 1-2. (Definitions) Except as otherwise provided, the definitions of terms used herein shall be governed by the Regulations.
Article 1-3 (Methods, Procedures, etc. concerning Processing and Executing of Trading Orders) (1) Matters prescribed by the Governor of the Financial Supervisory Service as those subject to the checkup of the appropriateness of trading orders by each financial investment business entity under Article 2-26 (1) 6 of the Regulations shall refer to the matters subject to the checkup of the appropriateness of the bidding price prescribed by the Business Regulations of the Exchange, such as issues and account numbers. (2) "Detailed matters prescribed by the Governor of the Financial Supervisory Service" in Article 2-26 (1) 13 of the Regulations means each of the following matters: 1. Each financial investment business entity shall observe each of the following provisions pertaining to choosing the methods of ordering trades, processing method, and conditions of the use thereof, etc. (hereafter referred to as "methods of receiving, processing, etc. of orders" in this subparagraph) pursuant to Article 2-26 (1) 3; (a) (b) (c) (d) It shall not impose any restriction on conditions of use or apply differential charges without any reasonable cause. When choosing the methods of receiving, processing, etc. of orders for an investor, it shall take into consideration the credit, expertise, risk management ability, etc. of the investor; It shall post the methods of receiving, processing, etc. of orders on its Internet home page; It shall explain the methods of receiving, processing, etc. of orders so that the investor can understand and reflect them in concluding a contract for starting a transaction on account; (e) The methods of receiving, processing, etc. of orders to be proposed to the investors shall require the approval from its law-abiding monitor; 2. In cases where any financial investment business entity receives a trading order by means of a telecommunication method, such trading order
shall undergo the first security checkup of its own information processing system for trading orders; 3. Trading orders that a financial investment business entity receives from an investor shall be processed by entering the details of the order in an order handling system in the order in which orders are received: Provided, That when any trading order is received from an investor by means of a telecommunication method, the order may be processed in the way chosen by such investor under Article 2-26 (1) 3 of the Regulations. [This Article Wholly Amended on Jan. 3, 2012] Article 1-3. (Special Provisions concerning Handling Non-Members' Orders) The term "rules established by the Governor of the Financial Supervisory Service" in the former part of subparagraph 2 of Article 2-26 of the Regulations means: 1. Any financial investment business entity that is not a member of the Exchange (hereafter referred to as "non-member" in this Article) shall, when it handles an investor's order for trading securities on his/her behalf in the stock market, trade such securities through an account opened separately from its proprietary account with a financial investment business entity that is a member of the Exchange, (hereafter referred to as "member" in this Article), and the number of such accounts with each member and for each market shall not exceed one; 2. A non-member shall, if it intends to handle investors' orders for trading in the derivatives market on their behalf, open an account exclusive for each customer with a member for such trading (each account shall be in the name of the non-member, but shall bear an additional identification code for each investor). Article 1-4. (Prohibition of Discrimination in Providing Data, Facilities, Services) (1) The term any act of providing data, facilities, services, etc. discriminatorily to any specific client without any justifiable cause prescribed by the Governor of the Financial Supervisory Service in Article 2-26 (1) 7 of the Regulations means any of the following acts:
1. Providing a specific investor biasedly with data or information about trading orders; 2. Providing a specific investor biasedly with equipment or facilities for processing the specific investor s trading orders through the trading system of the financial investment business entity (referring to the system of the financial investment business entity for processing trading orders, including the financial investment business entity s receipt of trading orders and monitoring and execution of prices bid or asked); 3. Creating a difference between investors in speeds of delivering investors trading orders in violation of the guidelines established by the Exchange. (2) Specific guidelines for detailed requirements under paragraph (1) shall be as prescribed in Annex 1-2 hereto. [This Article Newly Inserted on Mar. 27, 2012] PART Ⅱ. MAINTENANCE OF SOUNDNESS IN BUSINESS MANAGEMENT CHAPTER Ⅰ. ACCOUNTING Article 2-1. (Accounting Standards) The detailed accounting standards and the accounting standards for foreign exchange accounts under Article 3-1 of the Regulations are as prescribed in Annex 1-1 and Annex 2 hereto, respectively. <Amended on Dec. 29, 2010> Article 2-2. (Accounting Principles for Real Estate Trust Business Entities) The accounting principles with which real estate trust business entities shall comply pursuant to Article 3-4 (2) of the Regulations are as prescribed in Annex 3. <Amended on Dec. 29, 2010>
CHAPTER Ⅱ. FINANCIAL SOUNDNESS Article 2-3. (Scope of Competent Financial Institutions) The term "competent financial institution specified by the Governor of the Financial Supervisory Service" in subparagraph 13 (a) of Article 3-6, Article 4-40 (1) 9, and Article 5-18 (2) 2 (b) of the Regulations means those specified in Annex 4, respectively. Article 2-4. (Method of Calculating Risks by Standard Approach) The details about the method of calculating risks under Articles 3-16 (2) and (6), 3-17 (9), 3-18 (3), 3-19 (2), 3-20 (3), 3-21 (4), 3-22 (6), 3-23 (4) and (5), and 4-71 (1) 4 (c) of the Regulations are as set forth in Annex 5. Article 2-5. (Requirements for Internal Model) (1) Any financial investment business entity that intends to measure risks through its internal model pursuant to Article 3-24 (4) of the Regulations shall establish a risk management system that shall be operated in a sound and perfect manner, and the risk management system shall satisfy the qualitative requirements prescribed in Annex 6. (2) The Value at Risk (VaR) measured by an internal model shall satisfy the quantitative requirements prescribed in Annex 6. (3) Any financial investment business entity that intends to measure specific risks by its internal model shall satisfy all the requirements prescribed in Annex 6 hereto: Provided, That if the internal model fails to satisfy any additional requirements under Annex 6, the risk calculated in accordance with the following subparagraphs shall be added to the risk measured in accordance with Article 3-24 (3) of the Regulations: 1. If an internal model fails to satisfy the requirement under item (e) among the additional requirements under Annex 6: Any of the following items
shall be added to the general market risk calculated in accordance with Article 3-24 (3) of the Regulations: (a) An amount equivalent to the specific risk that shall be calculated separately from the estimated Value at Risk (VaR) by the internal model; (b) The estimated Value at Risk calculated by the internal model for the sub-portfolio of the bonds and stocks subject to the calculation of specific risk; 2. If An internal model is unable to measure the risk under subparagraph 1: The specific risk calculated by the standard approach shall be added to the general market risk measured in accordance with Article 3-24 (3) of the Regulations. Article 2-6. (Backtesting of Internal Model) (1) Any financial investment business entity that measures the market risk by its internal model shall compare, on a daily basis, actual net loss accrued and simulated net loss measured on the premise that the actual net loss and the final position on the previous day have remained unchanged since the date on which it began to apply the internal model, with the estimated Value at Risk (VaR) as on each business day respectively and shall keep and maintain records thereof (hereinafter referred to as "results of backtesting"). (2) In principle, the additional multiplier under Article 3-24 (3) 2 of the Regulations shall be determined by calculating the frequency of simulated net loss exceeding the estimated Value at Risk (VaR) on a daily bais as a result of backtesting (hereinafter referred to as "frequency of excess over standard") from the first anniversary of the day on which a financial investment business entity began to apply its internal model and shall apply and modify it on a quarterly basis in accordance with the provisons of Annex 7: Provided, That the Governor of the Financial Supervisory Service may take measures, such as imposition or modification of the multiplier applied when it was initially adopted as a result of backtesting, even in cases where one year has not passed since he/she recognized the financial investment business entity's internal model and the internal model was applied for the first time.
(3) The Governor of the Financial Supervisory Service may, if necessary for any financial investment business because its frequency of excess over standard falls within the "precautionary (yellow)" or "non-conforming (red)" zone set out in Annex 7, demand the financial investment business entity either to improve its internal model or to apply the standard approach. (4) Any financial investment business entity that measures specific risks by its internal model shall conduct backtesting for its internal model in the following manner: 1. The backtesting shall be conducted by using daily data of the portfolio subject to the calculation of specific risks; 2. The financial investment business entity shall internally divide the portfolio subject to the calculation of market risk into sub-portfolios and conduct the backtesting therefor; 3. The division of sub-portfolios under subparagraph 2 may be altered subject to the approval of the Governor of the Financial Supervisory Service; 4. A financial investment business entity shall, if the results of the backtesting conducted in accordance with subparagraphs 1 and 2 fall within the "red" zone, take all the following measures: (a) Immediate measures for rectifying problems of the model; (b) Proving that it maintains its net operating capital to the level that enables the controlling of the risks classified into the "red" zone. Article 2-7. (Combined Application of Internal Model and Standard Approach) (1) Any financial investment business entity that measures market risk by its internal model shall not measure market risk by the standard approach: Provided, That it may apply the standard approach if the Governor of the Financial Supervisory Service confirms that it is inevitable to do so.
(2) Every financial investment business entity shall apply either its internal model or the standard approach to over-the-counter trading of derivatives or each risk factor under Article 3-24 (2) of the Regulations. (3) Any financial investment business entity may exclude any position or new product deemed unimportant at present from the matters subject to the measurement of market risk by its internal model, and shall calculate market risk by the standard approach in such cases. (4) The market risk of any financial investment business entity that applies a combination of the standard approach and its internal model shall be the aggregate of the market risk measured by the standard approach and the market risk measured by its internal model. Article 2-8. (Recognition of Internal Models) (1) Any financial investment business entity that desires to have its internal model recognized shall file an application for the recognition of the internal model with the Governor of the Financial Supervisory Service by no later than six months before it intends to begin applying the internal model. In such cases, the financial investment business entity may file an application for recognition of the internal model for any specific risk factor (including over-the-counter trading of derivatives) or for all risk factors. (2) An application for the recognition of internal model under paragraph (1) shall contain descriptions of the following matters: 1. Risk factors subject to the application for recognition; 2. An outline of the internal model; 3. The method of and procedure for backtesting and the latest results therefrom; 4. The method of and procedure for the analysis of crisis and the latest results therefrom; 5. Documents required for the evaluation of the internal model.
(3) The Governor of the Financial Supervisory Service shall make a decision on whether to recognize, conditionally recognize, or reject an internal model by examining as to whether it satisfies the relevant requirements prescribed in Article 3-24 (1) through (3) of the Regulations and Articles 2-5 through 2-7 of the Detailed Regulations herein, and the recognition is deemed revoked, if any financial investment business entity, the internal model of which was conditionally recognized fails to fulfill condition. In such cases, definitions of the results are as set forth in Annex 8. (4) The Governor of the Financial Supervisory Service shall, when he/she notifies a financial investment business entity of the results of the evaluation of an internal model of the financial investment business entity, include the following matters in the notification: 1. Whether the application for recognition of the internal model is recognized for specific risk factors; 2. Whether specific risks has been calculated by the internal model; 3. Whether the correlation between risk factors is recognized; 4. Results of the assessment of the level to which the internal model meets the qualitative and quantitative standards; 5. The multiplier initially applicable to the internal model; 6. Other necessary matters. (5) Every financial investment business entity shall submit to the Governor of the Financial Supervisory Service each month a comprehensive report on the results of the backtesting conducted in accordance with Article 2-6 after applying its internal model. (6) A financial investment business entity shall, if it intends to modify an internal model, the hypotheses applied to an internal model, or the scope of transactions included in an internal model, consult with the Governor of the Financial Supervisory Service thereon in advance. In such cases, the Governor of the Financial Supervisory Service shall determine the significance of such modification and may take necessary measures, such as requiring the entity to apply for re-recognition of such internal model.
CHAPTER Ⅲ. ASSESSMENT OF CURRENT STATUS OF BUSINESS OPERATIONS AND TIMELY CORRECTIVE MEASURES Article 2-9. (Method of Assessing Current Status of Business Operations and Ratings thereof) (1) The weighting for assessment items in each category of the assessment of current status of business operations under Article 3-25 (6) of the Regulations are as prescribed in Annex 9 hereto, while the standards for determining quantifiable assessment items among the assessment items are as prescribed in Annex 10. (2) Definitions of assessment ratings of the current status of business operations are set forth in Annex 11 hereto. (3) The current status of business operations of overseas local legal entities and overseas branch offices of any financial investment business entity may be assessed only by quantifiable assessment items. (4) In principle, overall ratings shall be measured by taking into consideration quantifiable and non-quantifiable assessment items in each assessment category. (5) The Governor of the Financial Supervisory Service may prescribe separate standards for the classification of ratings for the quantifiable items and the details thereof, among the items subject to the assessment of the current status of business operations. (6) If results of the assessment of quantifiable items for a certain calendar quarter fall under any of the following subparagraphs, the overall rating shall be determined by the assessment of non-quantifiable items: 1. If the category of capital adequacy is rated to the fourth or lower grade (deficient); 2. If the quantifiable grade worsens by two grades or more; 3. If the quantifiable grade worsens for two consecutive quarters;
4. If it is determined that there is a high likelihood of insolvency. (7) Notwithstanding paragraph (6), where the result of the monthly quantitative assessment falls under any of the following subparagraphs, the general assessment rating may be calculated through the non-quantitative assessment: <Newly Inserted on Jul. 1, 2009> 1. Where the quantitative assessment rating worsens by two grades or more; 2. Where the quantitative assessment rating worsens for two consecutive months; (8) The Governor of the Financial Supervisory Service shall, when he/she completes overall assessment of the current status of business operations, explain the details thereof to the relevant financial investment business entity and shall hear its opinion thereon. Article 2-10. (Standards for Calculation of Liquidity Ratio of Korean Currency of Real Estate Trust Business Entities) Specific standards for calculating the liquidity ratio of Korean currency under Article 3-41 (2) of the Regulations are as prescribed in Annex 12. CHAPTER Ⅳ. RISK MANAGEMENT Article 2-11. (Risk Assessment Method) The details of the method of and the procedure for risk assessment under Article 3-44 (6) of the Regulations are as set forth in Annex 13 hereto. Article 2-12 (Internal Control of Institutions Dealing in Foreign Exchange) Pursuant to Article 3-45 (1) of the Regulations, every financial investment business entity dealing in foreign exchange shall establish and implement its own risk management standards referring to the Illustrative Guidelines set forth in Annex 14 hereto. Article 2-12. (Internal Management of Organizations Dealing in Foreign Exchange)
Each financial investment business operator dealing in foreign exchange shall establish and operate its own standards for risk management referring to the exemplification standards prescribed in Annexes 14 and 14-1 pursuant to Articles 3-45 (1) and 3-45-2 of the Regulations. <Amended on Apr. 9, 2010> CHAPTER Ⅴ. SOUNDNESS OF FOREIGN EXCHANGE Article 2-13. (Method of Calculating Liquidity Ratio for Foreign Currencies) The classification method of remaining maturities, the scope of assets and liabilities, and the method of calculating the ratio therof under Article 3-46 (2) of the Regulations are as prescribed in Annex 15 hereto. Article 2-14. (Scope of Assets and Liabilities in Foreign Currency) The specific scope of the assets and liabilities in foreign currency under Article 3-47 (3) of the Regulations is as follows: 1. The scope of spot assets and liabilities in foreign currency is limited to the assets and liabilities in foreign currency stated as on-balance-sheet accounts in the current status of foreign currency fund in the form of No. 18, "Report on Current Status of Foreign Exchange Business," in Supplementary Volume 1: Provided, That the amount of any asset or liability converted into Korean currency is fixed without regard to fluctuation of the foreign exchange rate between the relevant foreign currency and Korean currency among the assets or liabilities in foreign currency, such asset or liability shall be excluded herefrom, while assets and liabilities relating to lease are included herein only if acquired on or after July 1, 1998; 2. The scope of assets and liabilities of futures in foreign currency is as prescribed below, based on the accounts relating to derivative financial transactions in the current status of the foreign currency fund in the form of No. 18, "Report on Current Status of Foreign Exchange Business," in Supplementary Volume 1:
(a) The assets of futures in foreign currency are currency derivatives purchased and currency-related derivatives among credit-related or other derivatives purchased: Provided, That in cases of currency options, call options purchased and put options sold are deemed currency-related options purchased; (b) The liabilities of futures in foreign currency are currency derivatives sold and currency-related derivatives sold among credit-related or other derivatives sold: Provided, That in cases of currency options, call options sold and put options purchased are deemed currency-related options sold; 3. Notwithstanding subparagraphs 1 and 2, in cases where a financial investment business entity dealing in foreign exchange applies the rate of change in the value of options (delta) upon fluctuation of foreign exchange rates in the management of exchange rate risk ensuing from transactions of currency-related options, it may treat the risk exposure calculated by itself (nominal amount x delta) as the amount of assets or liabilities of futures in foreign currency. Article 2-15. (Calculation of Limit on Foreign Exchange Positions) (1) In converting any foreign currency other than US dollars into US dollars for calculating foreign exchange positions pursuant to Article 3-47 of the Regulations, the exchange rate calculated and advised by the head of a foreign exchange brokerage company on each business day shall be applied as the exchange rate between the foreign currency and US dollars. (2) The exchange rate applicable to US dollars for the purposes of Article 3-48 (2) of the Regulations is the average exchange rate of the applicable exchange rate at the time when the limit on foreign exchange positions was determined for the previous year and the average basic exchange rate for the previous year: Provided, That if there is no limit calculated on foreign exchange positions for the previous year, the average basic exchange rate shall apply. (3) The portion smaller than 1,000 US dollars shall be rounded up in calculating the limit on foreign exchange positions. Article 2-16. (Application for Approval for Special Limits)
(1) Any financial investment business entity dealing in foreign exchange shall, if it intends to have a special limit approved for foreign exchange positions pursuant to Article 3-49 (1) of the Regulations, file an application for approval of the special limit on foreign exchange positions within the corresponding deadline set forth below: 1. If it intends to have the special limit approved for the following year, by no later than the end of November each year; 2. If it is a branch office of any foreign financial investment business entity that desires to have the special limit approved for the purpose of hedging exchange risk arising from retained earnings carried-forward, by no later than one month before the date of settlement of accounts each year. (2) The Governor of the Financial Supervisory Service shall notify the applicant, by no later than the day immediately before the beginning of the pertinent year and the pertinent fiscal year, of whether to approve the special limit for which the application has been filed pursuant to paragraph (1). Article 2-17. (Explanatory Statement and Attaintment Plan pertaining to Violation of Liquidity Ratio) A financial investment business entity dealing in foreign exchange shall submit an explanatory statement and an attainment plan under Article 3-52 (1) within 20 days from the day on which it commits a violation. Article 2-18. (Reporting on Current Status of Foreign Exchange Business) Every financial investment business entity dealing in foreign exchange shall report the current status of foreign exchange business within the corresponding period of time set forth below pursuant to Article 3-68 of the Regulations: 1. Matters subject to reporting on a monthly basis: By no later than the end of the following month; 2. Matters subject to reporting on a quarterly basis: By no later than the end of each calender quarter.
CHAPTER Ⅵ. BUSINESS REPORT Article 2-19. (Method of Submitting Business Report) If any financial investment business entity submits a business report to the Governor of the Financial Supervisory Service pursuant to Article 3-66 (2) of the Regulations, it shall be made in electronic format using information systems (referring to the information systems under the Act on Promotion, etc. of Utilization of Information System). PART Ⅲ. BUSINESS CONDUCT RULES Article 3-1. (Recommendation of other Kinds of Investment) Pursuant to the latter part of Article 4-8 (2) of the Regulations, the recommendation of investment in any of the following financial investment instruments is deemed to be the recommendation of different kinds of investment: 1. Derivative-linked securities, the product structure (whether to protect the principal) of which is not identical; 2. Over-the-counter derivatives, the kinds of underlying assets (linked to equity, interest rate, exchange rate, product price, credit, etc.) or the product structure (forward, swaps, options) of which is not identical. Article 3-2. (Disposition of Preemptive Rights Related to Margin Trading) Pursuant to Article 4-33 (3) of the Regulations, every investment trader or broker shall comply with the provisions of Articles 3-3 through 3-10, when it disposes of a right to receive dividends or a preemptive right to new stocks in conjunction with margin trading of securities listed on the stock market or any other right arising from margin trading (referring to the vesting of a right arising between the investment trader or broker and an investor buying or selling by margin trading under Article
3-4, in cases where such dividend or preemptive right to new stocks is granted to an issue traded through margin trading; hereinafter the same shall apply). Article 3-3. (Cash Dividends) Every investment trader or broker shall, when any cash dividend is distributed to an issue traded by margin trading, pay an amount equivalent to the dividend in cash to investors buying by margin trading (referring to investors who borrow a loan in cash in conjunction with the margin trading of the issue as on the record date applicable to the vesting of the rights in cases where any dividend or preemptive right to new stocks is granted to the issue traded through margin trading; hereinafter the same shall apply), and shall collect the amount from investors selling by margin trading (referring to investors who borrow the stocks relating to the margin trading of the issue as on the record date applicable to the vesting of the right, in cases where a dividend or a preemptive right to new stocks is granted to the issue traded through margin trading; hereinafter the same shall apply). Article 3-4. (Stock Dividends) Every investment trader or broker shall, when any stock dividend is distributed to an issue traded on credit extended by it (hereinafter referred to as "credit-extended issue"), deliver the stock certificates to investors buying by margin trading, and require investors selling by margin trading to deliver the stock certificates to it to settle the right vested by margin trading: Provided, That the right to the stocks distributed may be settled by paying, in cash, the value of the right calculated by the formula in Annex 16 and accepting the payment, if it is found difficult to have the stock certificates delivered by the investors selling by margin trading or if the stock distributed is less than one unit. Article 3-5. (Payment Date of Dividends) (1) The payment of dividends in cash under Article 3-3 or the delivery of stocks under Article 3-4 shall be made without delay after the day on which the issuer of the relevant issue begins to distribute the dividends in cash or in stocks (hereinafter referred to as the "distribution date of dividends").
(2) The payment of dividends in cash under the proviso to Article 3-4 shall be made the day immediately after the stocks distributed as dividends for the relevant issue are listed initially on the stock market or the KOSDAQ market. Article 3-6. (Deposit of Expected Dividends in Cash) Any investment trader or broker may, if deemed necessary to receive dividends that shall be paid in cash or delivered by stocks in accordance with Article 3-3 or 3-4 by investors selling by margin trading, require such investors to deposit a cash amount equivalent to expected dividends in cash or by stocks in advance before the distribution date of the dividends. Article 3-7. (Preemptive Rights to Credit-Extended Issues) (1) Any investment trader or broker shall, when a preemptive right to new stocks is given to any credit-extended issue, dispose of the right arising in conjunction with margin trading in the following ways: 1. If new stocks are issued for capital increase for consideration: An investment trader or broker shall either deliver a certificate of preemptive right to new stocks (hereafter referred to as "certificate of preemptive rights" in this Part), or deliver new stock certificates in exchange for the payment for new stocks, to an investor who bought related stocks by margin trading if the investor desires to acquire the new stocks, while the investment trader or broker shall either have a certificate of preemptive rights delivered or have new stock certificates delivered in exchange for the payment for new stocks, by an investor who sold related stocks by margin trading if the investment trader or broker desires to acquire the new stocks; 2. If new stocks are issued for capital increase without consideration: An investment trader or broker shall deliver new stock certificates to an investor who bought related stocks by margin trading and have new stock certificates delivered by an investor who sold related stocks by margin trading.
(2) Notwithstanding paragraph (1), any investment trader or broker may dispose of a preemptive right to new stocks arising in conjunction with margin trading by settling the payment for the right in cash as calculated by the formula set forth in Annex 17 hereto, if it is found difficult to have the new stock certificates or the relevant certificate of preemptive right delivered by an investor who sold related stocks by margin trading or if the new stock distributed is less than one unit. Article 3-8. (Delivery Date of New Stock Certificates or Certificates of Preemptive Rights) The delivery of new stocks or the certificate under Article 3-7 (1) shall be made without delay after the issuer of the relevant issue begins to distribute the new stock certificates or the certificate of preemptive rights. Article 3-9. (Payment Date of Amounts Equivalent to Value of Preemptive Right) The payment date of the cash amount equivalent to the value of preemptive right to new stocks under Article 3-7 (2) is three days after the date on which the right to the relevant issue is extinguished (excluding holidays of the Korea Exchange): Provided, That if payment is not made in cash until the date fixed above, the certificate of preemptive rights to new stocks or new stock certificates shall be delivered instead. Article 3-10. (Disposition of Rights to Issues Borrowed for Trading) The disposition of issues that an investment trader or broker borrowed for margin trading from a securities finance company shall be governed by the guidelines on the disposition of dividends and preemptive rights to new stocks arising in conjunction with securities distribution finance as established by the securities finance company. Article 3-11. (Special Provisions concerning Disposition of Rights) If no provisions are applicable to the disposition of a right arising in conjunction with margin trading in this Part or if it is deemed improper to dispose of a right arising in conjunction with margin trading in accordance with this Part, the disposition of
such right is subject to consultation with the Governor of the Financial Supervisory Service. Article 3-12. (Details of Notice of Transactions) When any transaction of financial investment instrument is closed in accordance with Article 4-36 (3) of the Regulations, an investment trader or broker shall notify the relevant investor of the details of such transaction as prescribed by the following subparagraphs, including matters subject to notification: 1. Matters subject to notification: The account for which the sale or purchase according to the investor's order or any other transaction has been closed: Provided, That the accounts for which the descriptions of a transaction can be notified through a passbook or any similar means are excluded herefrom; 2. The managing entity: The relevant branch office or business office or the responsible department in the head office of the investment trader or broker. Article 3-13. (Details of Monthly Notice of Transactions) (1) Every investment trader or broker shall comply with the following subparagraphs with regard to matters subject to notification and the details and method of notification when it issued details of monthly trading in accordance with the former part of Article 4-37 (1) of the Regulations: 1. Matters subject to notification: The account for which a sale or purchase or any other transaction has been made during the pertinent month: Provided, That the accounts for which details of monthly trading can be notified through a passbook or any similar means are excluded herefrom; 2. The contents of notice: A copy of the electronic integrated ledger printed out by Koscom or any similar electronic data printed out by itself; 3. The method of notification: Notification shall be made by the method agreed in advance between the investment trader or broker and the
investor, among such methods as provided under Article 70 (1) 2 of the Decree: Provided, That each method of notification shall ensure that the matters subject to notification are delivered in a proper manner; 4. The managing entity: The organization exclusively dedicated to compliance monitoring or the auditor's office (hereinafter referred to as "compliance officer"). (2) Every investment trader or broker shall comply with the following subparagraphs with regard to the matter subject to notification and the details and method of notification when it gives notice of the balance of amount and remaining volume as at the end of a semi-annual term in accordance with the former part of Article 4-37 (1) of the Regulations: 1. The matter subject to notification: The account for which no sale or purchase nor any other transaction has been made during six months retrospectively from the end of the pertinent semi-annual term: Provided, That the accounts for which the balance of amount and remaining volume can be notified through a passbook or any similar means are excluded herefrom; 2. The contents of notice: Details of the balance of amount and remaining value printed out by Koscom or any similar electronic data printed out by itself; 3. The method of notification: The method of notification: Notification shall be made by the method agreed in advance between the investment trader or broker and the investor, among such methods as provided under Article 70 (1) 2 of the Decree: Provided, That each method of notification shall ensure that the matters subject to notification are delivered in a proper manner; 4. The managing entity: The compliance officer. (3) The term "amount prescribed by the Governor of the Financial Supervisory Service" in Article 4-37 (1) 2 of the Regulations means one million won (Provided, That the amount shall be 100,000 won for the account that no sale or purchase nor any other transaction has been conducted during one year since the latest notice of balance was given).
Article 3-14. (Occasional Verification of Balance of Amount and Remaining Volume) Every investment trader or broker shall, when it verifies the balance of amount and remaining volume from time to time in accordance with Article 4-37 (2), establish and implement internal control guidelines appropriate for preventing disputes with investors or accidents likely to arise. Article 3-15. (Management of Accounts with Notices Returned) Every investment trader or broker shall, when it issues a notice to an investor in accordance with Articles 4-36 and 4-37 of the Regulations, establish and implement internal control guidelines appropriate for preventing disputes with the investor or accidents likely to arise when the notice regarding accounts fils to be delivered. Article 3-16. (Management of Accounts for which Rejection of Notice Made Manifested) Every investment trader or broker shall establish and implement internal control guidelines appropriate for preventing disputes with investors or accidents, in cases where investors manifested their intent to reject any notice in accordance with the proviso to Article 70 (1) 2 of the Decree. Article 3-17. (Inclusion of Information about Filing Objections) Every investment trader or broker shall contain the information about how the addressee can contact the compliance officer for inquiry or verification if he/she has any objection in regard to a notice or inquiry for occasional verification of balance of amount and remaining volume under any provisions of Articles 3-12 through 3-14. Article 3-18. (Amount Deemed Automatically Approved) The term "amount prescribed by the Governor of the Financial Supervisory Service" in Article 4-42 (3) 1 of the Regulations means an amount equivalent to 5/100 of the reserve for claims of customers' deposits in the relevant investment trader or broker. Article 3-19. (Method of Calculating Optional Risk by Scenario-based Approach)
(1) The risk of an option by the scenario-based approach under Article 4-71 (1) 3 of the Regulations is the greater of loss among the amounts of net profit or loss accrued to the option and the position of the related underlying asset, as calculated by each scenario in the form of a matrix set up with two dimensions of the range of changes in the value of the underlying asset and the range of changes in the volatility of the value. (2) The range of changes in the value of the underlying asset under paragraph (1) shall be divided into at least seven equally distributed intervals with any of the following assumed rates of change in the respective underlying asset: 1. If the underlying asset is an interest rate position: The change in the assumed interest rate set forth in Table 6 of Annex 5; 2. If the underlying asset is an equity position or foreign exchange position: 8%. (3) The range of changes in the price volatility of an underlying asset under paragraph (1) shall be divided into at least seven equally distributed intervals with an assumed rate of change of ±25%. Article 3-20 (Guidelines for and Methods of Credit Extension to Privately Placed Fund for Qualified Investors) (1) "Guidelines and methods prescribed by the Governor of the Financial Supervisory Service" in the latter part of Article 4-102 (2) of the Regulations means the matters set forth in each of the following subparagraphs: 1. The amount of credit to be extended to a privately placed fund for qualified investors with the fund procured from third parties shall be within the limit of the amount of the collateral secured from such privately placed fund for qualified investors; 2. Appropriate measures shall be prepared in advance to control the security provided to the third parties to cope with the withdrawal, etc. of the security of a privately placed fund for qualified investors, such as the measures for prompt withdrawal of the security provided to the third parties;
3. In cases where any security procured from a privately placed fund for qualified investors are utilized, the agreement on the method of providing such security to the third parties and the public notification of the details of the provision of such security shall be made with the privately placed fund for qualified investors. (2) "Procedure and method prescribed by the Governor of the Financial Supervisory Service" in Article 4-102 (4) of the Regulations shall be as prescribed in Annex 30. [This Article Newly Inserted on Dec. 6, 2011] PART Ⅳ. OVER-THE-COUNTER TRADING Article 4-1. (Standards for Assessment of Business Competence as Bond Floor Trader) (1) The standards for the assessment of business competence as a bond floor trader under Article 5-11 (2) 3 of the Regulations are as prescribed in Annex 18. (2) The standards for the assessment of performance of duties of a bond floor trader under Article 5-16 (2) 2 of the Regulations are as prescribed in Annex 19. Article 4-2. (Notification of Results of Formation of Transaction of Foreign Currency Securities) (1) The term "manner prescribed by the Governor of the Financial Supervisory Service" in the main sentence of Article 5-34 of the Regulations means the manner prescribed below: 1. Notification to an investor: The name of the issue of foreign currency securities, the total amount of payment in foreign currency, including the amount agreed in foreign currency (quantity x unit price), local commissions, and other expenses (including commissions that an investment broker charges an investor in conjunction with the trading
of foreign currency securities), and the amount required for changing into the foreign currency; 2. Notification to the Korea Securities Depository: Matters concerning the delivery or payment of the foreign currency securities specified by the Korea Securities Depository or the proceeds therefor; 3. Notification to a foreign exchange bank involved: The name of the issue of the foreign currency securities, the amount of payment in foreign currency, and the details of the transaction formed. (2) Notice under paragraph (1) 2 may be issued through the depositor communication system set up between the Korea Securities Depository and investment brokers. Article 4-3. (Reporting on Current Status of Transactions of Exchange-Traded Derivatives) (1) Pursuant to Article 5-42 (3) of the Regulations, every investment trader or broker dealing in exchange-traded derivatives shall report to the Governor of the Financial Supervisory Service the following facts relevant to each trading day at the close of business on the immediately preceding trading day: 1. The balance of investors' deposits; 2. The balance of money currently deposited in the account only for investors' deposits in a depository; 3. The balance of money currently deposited in the account only for investors' deposits in a quasi-depository; 4. The amount of receivables from customers; 5. The number of accounts for investors' trading of derivatives for which an additional deposit of margin guarantee money or payment for settlement is required; 6. The total amount of the margin guarantee money and the payment for settlement that investors are required to deposit additionally.
(2) Every investment trader or broker dealing in exchange-traded derivatives shall report the following facts to the Governor of the Financial Supervisory Service each month: 1. The results of transactions under contracts for derivatives for its own account and for investors' accounts during the month and the profit or loss therefrom; 2. The number of investors who have accounts for trading derivatives as at the end of the month; 3. The amount of fees and commissions accrued during the month. (3) Every depository shall report the following facts to the Governor of the Financial Supervisory Service: 1. The deposit balance of each investment trader or broker dealing in exchange-traded derivatives in the account only for the investors' deposits as at the close of each business day; 2. The details of the management of the deposit in the account only for investors' deposits during each month; 3. The details of the management of the deposit in the account only for investors' deposits during each semi-annual period or each accounting period and the results of such management; 4. The materials that the Governor of the Financial Supervisory Service demands to review the status of the safekeeping or management of the deposit in the account only for investors' deposits. PART Ⅴ. FOREIGNERS' TRADING OF SECURITIES OR EXCHANGE-TRADED DERIVATIVES Article 5-1. (International Central Securities Depository) (1) The term "International Central Securities Depository specified by the Governor of the Financial Supervisory Service" in Article 6-7 (1) 18 of the Regulations means Euroclear and Clearstream.
(2) The International Central Securities Depository under paragraph (1) shall report to the Korea Securities Depository on the details of transactions of government bonds and monetary stabilization bonds (including the details of transactions under Article 6-7 (1) 18 of the Regulations), conducted by foreigners who are exempt from the registration of investment pursuant to the proviso to Article 6-10 (3) 3 of the Regulations, by the 10th of the following month based on the last day of each month. <Amended on Jul. 27, 2009> (3) The Korea Securities Depository shall report to the Governor of the Financial Supervisory Service on the details reported in accordance with paragraph (2) by the 15th of the following month based on the last day of each month. <Amended on Jul. 27, 2009> (4) Where a foreigner transfers securities acquired pursuant to Article 6-7 (1) 18 of the Regulations to his account or an account in the name of the International Central Securities Depository to dispose of the said securities pursuant to Article 6-7 (1) 18 of the Regulations, and when he/she transfers securities between the International Central Securities Depositories, he shall have the Korea Securities Depository report the relevant details to the Governor of the Financial Supervisory Service without delay through the foreigners' investment management system. In such cases, The latter part of Article 5-4 (2) shall not apply. <Newly Inserted on Jul. 27, 2009> Article 5-2. (Application for Registration of Investment) (1) A foreigner who intends to file an application for registration of investment in accordance with Article 6-10 (1) of the Regulations shall submit official documents, such as a copy of his/her passport, documents certifying the establishment of a corporation, etc. which can verify his/her identify, along with the application. (2) Any investment manager who intends to file a report on an investors' group in accordance with Article 6-10 (4) of the Regulations shall prepare an application and submit it to an investment trader or broker along with relevant evidentiary documents. Article 5-3. (Reporting)
The matters required to be reported in conjunction with the details of foreigners' transactions of securities and derivatives under Article 6-27 of the Regulations are as specified below: 1. Each foreigner shall report to the Governor of the Financial Supervisory Service, without delay, on the details of their transactions of listed securities (including the details of stocks acquired or disposed of as a result of the exercise of a stock option or the allotment for the exercise of rights) and the details of the accounts opened (including the details of the accounts opened for the settlement of stocks in connection with stock options) through the foreign investment management system; 2. Each financial institution (referring to such financial institution as defined in subparagraph 8 of Article 6-1 of the Regulations; hereafter the same shall apply in this Article) shall report to the Governor of the Financial Supervisory Service on the status of foreigners' transactions with the financial institution of short-term financial instruments by type as at the end of each month, via the association of which it holds a membership, such as the Korea Federation of Banks, the Korea Financial Investment Association, and the Investment Banks Association of Korea, by no later than the 15th day of the following month; 3. Each depository (referring to such depository as defined in Article 6-21 (1) of the Regulations; hereafter the same shall apply in this Article) shall report to the Governor of the Financial Supervisory Service the current status of securities deposited by foreigners as at the end of each month, via the association of which it holds a membership, such as the Korea Federation of Banks and the Korea Financial Investment Association, by no later than the 15th day of the following month: Provided, That the Korea Securities Depository, foreign depositories, and foreigners who have not deposited their securities in a depository in accordance with the proviso to Article 6-21 (1) of the Regulations shall report the details of their holdings to the Governor of the Financial Supervisory Service; 4. Any corporation newly listed on the stock market or any listed corporation merged with another corporation shall report, without delay, to the Governor of the Financial Supervisory Service on the current