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Jun 14, 2013
- Revision to Enforcement Decree of the Financial Investment Services and Capital Markets Act (FSCMA)
- BACKGROUNDThe revised Financial Investment Services and Capital Markets Act (FSCMA) was promulgated in May 28, 2013, which includes vitalizing investment banking (IB) business, introducing alternative trading systems (ATSs), and amending the current regulatory framework of asset management businesses.In line with the revision to the FSCMA, the FSC plans to revise the Enforcement Decree of the FSCMA to stipulate specific terms on matters delegated by the Act and further improve the current capital markets system.KEY CONTENTS1. Stimulate investment banking (IB) business(Requirements to be registered as an IB) A securities firm will be required to hold equity capital worth KRW 3 trillion or more and have the mechanism of risk management and internal control.(Prime brokerage service) The scope of customers with whom IBs can provide prime brokerage service will be expanded to financial companies, pension funds, overseas hedge funds as well as Korea-based hedge funds stipulated in the revised Act.(Credit extension for companies) The Enforcement decree specifies the scope of credit extension that IBs can provide companies as loans, payment guarantee, and bill discount. It also details types of credit extension exempted from the rule which limits a total amount of credit extension by an IB not to exceed its equity capital.2. Improve capital market infrastructure(Introduction of ATS) To be registered as an ATS, a securities firm will be required to hold equity capital worth KRW 20 billion or more. The Enforcement Decree specifies types of products that can be traded through ATSs as stock certificates and depository receipts (DR).ATSs will be subject to the same rules applied to exchanges in regard with measures on market surveillance and market stabilization such as daily price limit or trading halt, while it will be granted greater autonomy and flexibility in regard with trading business.Securities firms, however, can execute customers’ orders as customers want if there w
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Feb 28, 2013
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Jul 09, 2012
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May 07, 2012
- Four Mutual Savings Banks Ordered to Suspend Operations
- In a provisional meeting held on May 6, 2012, the Financial Services Commission (FSC) ordered four mutual savings banks – Solomon, Korea, Mirae and Hanju – to halt operations for six months to improve their finances after determining them as “financial institutions in distress”.The order came as a result of the inspection by the Financial Supervisory Service (FSS) and a joint committee’s review on six mutual savings banks, which were ordered on September 18, 2011 to normalize their business operations within a grace period. The suspended four mutual savings banks were among the six.Background and ProgressThe government cleaned up nine troubled mutual savings banks – Samhwa, Busan, Daejeon, Busan II, Jungang Busan, Jeonju, Bohae, Domin, Kyongeun – in the first half of 2011 to resolve the mutual savings bank issue.For the seven weeks from July 5 to August 19, 2011, a management assessment taskforce consisting of the FSS and the Korea Deposit Insurance Corporation (KDIC) inspected 85 mutual savings banks’ management situations* in a preemptive move to remove uncertainty about mutual savings banks.* Out of 98 savings banks in operation as of end-June 2011, 13 savings banks were exempted from the inspection as they already went through inspections in the first half of 2011.On September 18, 2011, the FSC suspended business operations of seven mutual savings banks – Daeyeong, Ace, Prime, Parangsae, Jeil, Jeil II and Tomato – for six months, out of 13 mutual savings banks which had been determined as in distress subsequent to the inspection by the FSS and the review of their management improvement plans.The remaining six savings banks were given a grace period before being ordered to shut down their operations, consequent to the management assessment committee’s approval and a possibility of independent normalization.The FSS conducted inspections of the six savings banks to assess their progress on management improvement plans and additional distress f
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Jan 06, 2012
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Nov 18, 2011
- Lone Star Ordered To Sell Down Its Stake in Korea Exchange Bank
- I. Sale Order of Lone Star’s Excess Stake in KEBRULINGThe FSC decided to order Lone Star Fund IV (hereinafter “Lone Star”) to sell its stake in KEB that exceeds 10% of the total number of voting stocks within six months by May 18, 2012.** Article 16-4 of the Banking Act (5) Where a limit excess stockholder, etc. who has received an order under paragraph (3) fails to comply with the order, the FSC may order the limit excess stockholder, etc. to dispose of the stocks of a financial institution held by him in excess of the limit as set in Article 15(3)1 within a specified period of not more than six months.The sale order was made on ground that Lone Star failed to redress qualifications as a majority stakeholder in KEB within the deadline (October 28, 2011) set by the FSC, and the situation still remains unfixed.** Lone Star was ordered to redress its qualification as a majority stakeholder under the Banking Act that requires no record of punishment for violation of financial laws and regulations since it was ruled guilty of stock price manipulation and fined KRW 25billion.The FSC concluded that we should not delay our decision any longer, leaving the situation uncorrected.REASON FOR SETTING A SIX-MONTH PERIODThe FSC decided to give Lone Star a six-month period to reduce its stake in KEB, considering the number of stocks to be sold and precedent cases.Lone Star has to sell a total of 265 million shares (41.02%), the largest number of stocks that any shareholder was ever ordered to sell. We also took into our consideration fairness with a precedent case that a majority shareholder in an insurance company was given a six-month period to sell four million shares (41.4%).REASON FOR NOT SPECIFYING DETAILS OF THE SALEThe FSC decided not to specify details of the sale, considering the purpose of eligibility test for majority shareholders and reference cases home and abroad.The eligibility test for majority shareholders and the sale order of shares aim to eliminate unqua
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Sep 15, 2011
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Aug 09, 2011
- Temporary Ban on Short Selling
- The Korean stock market has declined for six consecutive days since August 2, amid growing concerns over the possibility of U.S. economic recession and spreading of the European fiscal crisis.*KOSPI: 2172.31p (Aug. 1) → 1801.35p (Aug. 9), ∆370.96p (∆ 17.1%)In particular, over two days from August 8 to 9, the KOSPI has dropped 142.4 points, or7.44 % as the aftershock of the downgrade of the U.S. sovereign rating significantly increased volatility in the market.*There were the 5-minute suspensions of trading in the KOSPI market (“sidecars”) and the 20-minute suspensions of the Kosdaq market (“circuit breakers”) for two consecutive days.Short sales are significantly increasing in the falling markets, spreading market anxiety. The amount of short sales, which was KRW100 billion per day on average in the first half of this year, has recently surged over KRW 400 billion, exceeding the previous record high of KRW 234.6 billion since September 2008. Short sellers are mostly foreigners and institutions. From August 2 to 5, they sold an average of KRW 314.7 billion per day in short selling, accounting for 96.7% of the total short-selling transactions.Against this backdrop, the FSC has decided to temporarily ban short selling of all listed stocks in the Korea Exchange and Kosdaq markets for three months from August 10 to November 9.* In response to the global financial crisis in 2008, the FSC banned short selling of all listed stocks, starting October 1, 2008; and lifted the ban on non-financial stocks from June 1, 2009, while keeping the ban on financial stocks.During the same period of the three months, the FSC will temporarily ease restrictions on the amount of equities that securities issuers can buy back their own.* Please read the attached file for details.
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Jul 20, 2011
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Jun 08, 2011
- Progress Report on the Private Equity Funds Market in Korea
- BACKGROUNDPrivate Equity Funds (PEFs)* were introduced to Korea’s capital markets with the amendments to the Indirect Investment Asset Management Business Act (integrated into Financial Investment Services Capital Markets Act in 2007) on December 6, 2004 in order to promote corporate restructuring, MAs and to diversify investment instruments.* A private equity fund, structured as limited partnerships, typically makes investments in companies, funded with the capital raised from a few investors, and sells companies for high returns after value improvement.The domestic PEF market has gone through its introductory period from 2004 to 2007 and is now in its take-off stage. As of end-2010, there were 148 PEFs registered with a total of KRW 26.6 trillion in committed capital.*As of end-May 2011, the number of PEF firms rose to 167 with KRW28.9 trillion in investment commitments.REVIEW OF THE PAST SIX YEARS1. Fund raisingThe number of PEFs has been on the steady rise since its introduction in 2004 and reached 148 as of end-2010.In particular, for the past three years after the global financial crisis, the number of PEFs grew by 104, up 236% compared to end-2007, as more companies determined it to be the right time for investments.Their capital commitments and actual investments also increased to KRW26.6 trillion and KRW16.7 trillion at the end of 2010, up 197% and 234%, respectively, from 2007.- Capital Commitment: Investors’ obligation to provide a certain amount of capital to a PEF for investments at the time of fund formation- Actual Investment: The sum of investments into the target made through equity financing and debt financing- Capital Drawdown: The portion of capital committed to a fund that is drawn down over time2. InvestmentsPEFs expanded their investments from Korean manufacturing companies (212) to foreign companies, which totaled 25 as of end- 2010. They are also diversifying overseas investments*, shifting their focus away from the United States and ind
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May 19, 2011
- Korea to Chair FSB T/F on EMDE Issues
- BACKGROUNDThe G20 leaders at the Seoul Summit held in November 2010 agreed to put financial regulatory reform issues viewed from the perspectives of emerging countries on G20 agenda ,and asked the FSB, IMF and World Bank to submit a progress report prior to G20 Cannes Summit in November 2011.Recognizing that G20 discussions had been mainly focused on how to overcome financial crises in advanced countries, Korea proposed that financial issues relevant to emerging countries need to be more actively discussed at the G20 meetings.TASK FORCE FOR EMERGING MARKET AND DEVELOPING ECONOMIES (EMDES)Against this backdrop, the FSB created a task force to deal with EMDE-specific issues in March 2011. The T/F is to select financial regulatory issues from the perspectives of EMDEs and make relevant policy recommendations.Groups of technical experts will be created within the T/F to conduct in-depth reviews on specific issues.** management of capital flows and foreign exchange risks, prudential oversight on global financial institutions, supervisory cooperation between home and host countries, implementation of international standards, development of capital markets, etc.The T/F is composed of international organizations (IMF, World Bank, BCBS, IAIS, IOSCO, BIS, ECB); and FSB members (Korea, the U.S., Canada, Japan, China, India, Brazil, Indonesia, Mexico, Russia, Saudi Arabia, Spain, North Africa, Argentina, etc)Korea’s FSC was appointed as chair of the T/F in May 2011, and FSC Standing Commissioner Sangche Lee will be representing Korea and preside over discussions in the T/F.The T/F is scheduled to submit an interim report to FSB Plenary Meeting on July 19, 2011. The report will be circulated to FSB regional consultative groups for review by September, and the final report will be completed prior to G20 finance ministers’ meeting in October and G20 Summit in November.*Please read the attached file for details.
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Apr 06, 2011
- Korean Financial Market Update
- 1. Recent trends in the stock marketThe KOSPI index, which once fell to a low point of 1,923.30 on March 15 after the Japanese earthquake, has rebounded to a record-high of 2130.43 on April 5, renewing the highest point of 2,115.69 prior to the earthquake.The recent recovery in stock prices is mainly attributed to foreigners’ net buying based on their optimism that the Korean economy is relatively stable amid ongoing external uncertainties such as Japan’s earthquake and political turmoil in the Middle East.2. Foreign investors’ movement in Korean stock exchangeForeigners sold KRW 3.5 trillion in February, the biggest net sale by monthly basis since May 2010, but made net buying of KRW 1.2 trillion in March: notably, net buying of KRW 2.8 trillion after the Japanese earthquake.(By country)Starting this year, there has been a continued outflow of European funds (including the U.K), reflecting ongoing uncertainties in the European region. By contrasts inflows of funds from the U.S. and Asian region have been increasing since March.*As of March, the U.S made a net purchase of KRW 1.3 trillion, Singapore of KRW 0.7 trillion, China of KRW 0.2 trillion*Despite our concern of Japanese capital being pulled back, Japanese made a net purchase of KRW 155 billion instead(By fund-type)In February, all foreign investors except for Asian sovereign funds were net sellers. Starting March, however, the U.S. funds began to make net buying in large volume. Net buying by foreign investors was mostly made after Japan’s earthquake, and European investors (excluding European funds) also turned net buyers of Korean stocks.(By investment period)It has turned out more than half of foreign net buying made after the Japanese earthquake was made by short-term investors. (i.e. investment banks)*Short-term: IB with investment turnover ratio over 500%3. Grounds for foreign investors’ net buyingWithout wider spread of risk from the recent Japanese earthquake and the regional conflict in the
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Mar 30, 2011
- Monitoring Results of Domestic Banks' Foreign Currency Financing
- OverviewThe Financial Services Commission (FSC) and the Financial Supervisory Service (FSS) have been operating an Emergency Financial Situation Room and holding Joint Financial Check-up Meetings as the need arose to monitor the effects of external risk factors such as earthquakes in Japan, unrest in the Middle East and European sovereign risk on domestic financial markets including foreign currency funding and management of domestic banking industry and foreign exchange market*.*Refer to the press release dated 13 March 2011, “Result of Emergency Financial Check-up Meeting in relation to earthquakes in Japan”Foreign currency funding in the wake of earthquakes in JapanAs of March 20, 2011, domestic banks including foreign bank branches operating in Korea raised U$248.8 billion through foreign currency borrowings and deposits, etc. They had U$214.5 billion in foreign currency-denominated assets under management in the forms of foreign currency loans, trade financing and foreign currency securities, etc.Since earthquakes in Japan on 11 March 2011, foreign currency funding*, mostly through foreign currency borrowings, increased by U$1 billion and foreign currency management** increased by U $2.6 billion. The increase of U$1 billion in foreign currency funding since March 11 mostly resulted from domestic banks raising more foreign currency funds.* U$1.8 billion up in foreign currency borrowings, U$800 million down in foreign currency deposits **U$1 billion up in foreign currency loans, U$1 billion up in trade financing, U$600 million up in foreign currency securitiesAn FSS survey of domestic banks and foreign bank branches conducted immediately after the earthquakes broke out in Japan found that there were no signs of capital outflows. Instead, borrowings from headquarters by domestic branches of four Japanese banks increased U$940 million from March 14 to 25 even after the breakout of earthquakes.In addition, funding conditions for domestic banks remained stable af
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Feb 23, 2011
- Unfair Trading Investigation Results and Penalties
- Violation of prohibition on market manipulation through the link between spot and futures by KOSPI200 stocks and derivatives trading on November 11, 2010, a KOSPI200 options’ expiry dateCase OverviewAccording to investigation results, AAA1), who is head of Absolute Strategy Group (ASG)- Asia of Deutsche Bank AG Hong Kong Branch, DDD, who is in charge of ASG - Global of New York Deutsche Bank Securities Inc., etc. conspired with EEE, who is managing director of Global Equity Derivatives (GED) at Deutsche Securities Korea, Deutsche Bank AG’s South Korean securities unit, to manipulate market prices in Korean capital markets.They had constructed speculative derivatives positions in advance through the combination of short synthetic futures and long put options. In order to gain profit from these speculative positions, they sold KRW2.4424 trillion (US$ 2.2 billion) worth of stocks listed in the KOSPI200, which they had purchased through index arbitrage trading and held during the last year (2010), in the last ten minutes before the market closed on Nov. 11, 2010, an expiry date for KOSPI200 options.Due to these massive manipulative orders, KOSPI200 index plunged 2.79% (254.62p → 247.51p) and they gained illegal profits of KRW44.87 billion (US$ 40.5 million) from market manipulation through the link between spot and futures (options) transaction.Investigation Activities and Enforcement ProcessA joint investigation team by the Financial Supervisory Service (FSS) and the Korea Exchange (KRX) was organized to commence an investigation on Nov. 12, 2010, the next day on which the incident occurred.- Investigation team members: five staffs in Special Investigation Team of the FSS, two staffs in Review Team 3 of the KRX- In-depth investigations were carried out for about two months from Nov. 12, 2010 to Jan. 21, 2011 which included interviews with involved persons and collecting evidences at the Deutsche Bank AG Hong Kong Branch, which placed massive orders to sell, and D
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Dec 20, 2010
- Macro-prudential Stability Levy
- BackgroundThe Korean government plans to impose Macro-prudential Stability Levy (“the Levy”) on non-deposit foreign currency liabilities with three motivations.First, the key factor of the past two financial crises in 1997 and 2008 was sudden capital outflows following excessive capital inflows during boom periods. Like many otheremerging and developing countries with a small and open economy, Korea is highly vulnerable to changes in the global economy and sudden capital movements. Of the various capital flows, overseas borrowings are the most volatile, in particular short-term ones. The Korean government, which has reinforced macro-prudential measures toreduce volatility in capital movement within the framework of an open and liberalized economy, now decided to introduce the Levy.Second, the need to curb massive capital inflows in the form of carry trade into Korea is growing as global liquidity has been rapidly increased by Quantitative Easing measures (QE) and the exceptionally low interest rates in advanced countries. A surge of capitalinflows could lead to inflation and asset price bubbles, and a sudden reversal of such inflows could possibly result in a systemic risk.In addition, the Levy will be used as to provide liquidity when necessary to help the Korean economy cope with external shocks.The introduction of the Levy is consistent with the global trend, in particular with the communiqué of the G20 Seoul summit where the leaders have agreed on the need for design and implementation of macro-prudential measures to curb excessive capital flows. Germany, the United Kingdom and France are about to impose the financial levy from January 2011 with the aim of repairing the financial system or procuring resolution fund. Against this backdrop, the Korean government plans to adopt the Levy as a pre-emptive and precautionary measure to stabilize both financial market and economy as a whole.Key characteristics of the Levy1. ImpositionIn order to strengthen macro-pr
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Dec 17, 2010
- Basel III QIS and Its Implications
- The Basel Committee on Banking Supervision (“the Committee”) published the results of its comprehensive quantitative impact study (QIS) on December 16, 2010 to ascertain the impact of the Basel III rules on banks’ capital adequacy, leverage and liquidity ratios. A total of 263 banks from 23 of the 27 Committee member jurisdictions participated in the study.In Korea, 8 banks submitted data for the comprehensive QIS including 5 Group 1 banks (Woori, Shinhan, Hana, KB and IBK) and 3 Group 2 banks (Nonghyup, Daegu and Busan).Capital ratios as of year-end 2009Group 1 banks’ average common equity Tier 1 (CET1) capital ratios under the new regime would have sharply fallen from an average gross CET1 capital ratio of 11.1% to 5.7%.This decline is mainly attributable to the new definition of capital deductions and filters not previously applied at the common equity level of Tier 1 capital. For the Group 1 banks, the reduction in CET1 capital is driven primarily by deductions of goodwill, etc.For larger banks (Group 1 banks), the change in net CET1 capital (with deductions) compared to gross CET1 capital (without deductions) amounts to -41.3%. The reduction in C ET1 capital of Group 1 banks from Korea by deductions amounts to 3.2%.In the meantime, CET 1 capital ratio of domestic banks would remain around 10.3% under the Basel III Framework, exceeding a CET1 target level of 7% (including the capital conservation buffer).Average capital ratios by banking group, in percent CET1 Tier 1 Total Change in CET 1 by deductions Gross Net Current New Current New Group 1 Average* 11.1 5.7 10.5 6.3 14.0 8.4 -41.3 Korean banks 11.3 10.3 11.1 10.4 14.7 13.5 -3.2 Group 2 Average* 10.7 7.8 9.8 8.1 12.8 10.3 -24.7 Korean banks 10.4 9.7 10.7 10.0 15.3 13.4 -1.8 *Average of banks from 23 countries Relative to a 7% CET1 level, the capital shortfall for Group 1 banks in the QIS sample is estimated to be €577 billion (KRW880 trillion) under the Basel III requirements (including the capital
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Dec 14, 2010
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Nov 24, 2010
- Results of Emergency Economic Meeting after North Korea's Artillery Firing
- Vice Minister of Strategy and Finance Yim Jong-yong called for an emergency economic meeting* on Wednesday, November 24, a day after North Korea’s attack on Yeonpyeong Island to discuss the attack s impact on domestic and overseas financial markets and policy responses to future developments.*attendees: Vice Minister of Strategy and Finance (chair), Vice Minister of Knowledge Economy, Vice Chairman of Fair Trade Commission, Vice Chairman of Financial Services Commission, Senior Deputy Governor of BOK, Senior Deputy Governor of Financial Supervisory ServiceMarket reactionsAs the news of North Korea’s artillery firing was first reported at around 2:58 pm, right before the market close at 3:00 pm, it did not have a substantial and immediate impact on the stock market. However, after-hour markets including the futures market rattled, showing growing volatility.Right after the outbreak of the incident, Korea’s CDS spreads and Non-Deliverable Forward (NDF) rates sharply soared, but over time there has been no further rise.Potential impactThe attack’s impact on financial markets and the real economy may vary with future developments of the incident; however, as long as the situation does not escalate further, the impact is expected to remain temporary as it did when faced with similar geopolitical risks.Considering Korea’s solid economic recovery, fiscal soundness, current account surplus, and large foreign exchange reserves, to which foreign investors give high credibility, the Korean economy has sufficient capacity to absorb external shocks.Market observers and credit rating agencies assess that the incident would not significantly affect Korea’s sovereign credit ratings. *Moody’s said that North Korea’s attack would not negatively affect Korea’s sovereign credit rating.*Fitch maintained Korea’s sovereign rating at A + with the “stable” outlook.*SP said that the incident would not undermine foreign investment in Korea and other indices affecting K
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Nov 22, 2010
- Countermeasures against KOSPI's Sudden Plunge on Nov. 11
- BackgroundThe KOSPI index plunged 48 points in the last ten minutes before the market closed on November 11, the options expiry date of the month, as foreign investors cleared their arbitrage positions by selling off KRW2.4 trillion worth of shares.Out of the sell-off worth KRW 2.4 trillion, it turned out that 97% of sell orders were made through a single trading desk. We, the FSC/FSS and Korea Exchange, are currently investigating whether the massive sell-off through the brokerage involved any alleged act of unfair trading.We are also probing into a local investment company, WiseAsset, who suffered huge losses from options trading on November 11, with particular focus on any illegality of the company’s asset management and its internal risk management system.Fluctuations in stock prices are inherent part of capital markets; however, severe volatility over a short period of time caused by a few market forces could leave individual investors unprotected and undermine investors’ credibility in Korean capital markets. In this respect, we plan to thoroughly investigate causes of the incident and come up with needed measures to make capital markets in Korea more stable.Upon a thorough investigation on whether there was any act of unfair trading involved and whether the financial investment company properly managed its investment risks, any violation of relevant laws and regulations will be dealt with strict sanctions to prevent a recurrence of a similar event.Measures to comeThe FSC/FSS will thoroughly review vulnerabilities of Korea’s capital markets as revealed on Nov. 11 and take prompt actions to bring immediately needed reforms to the current market system and practices. Depending on the results of the investigations, we will come up with follow-up measures for the longer term. A. Immediate actions1. Strengthening brokerage firms’ settlement risk managementBrokerage firms are exposed to the so-called settlement risk because they are the first to take respons
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Oct 05, 2010
