The
Korean securities market is principally regulated by the Act,including the supervision of securities-related
institutions. The
Act's main purpose
is to ensure fairness
of transactions in
both the issuing and
trading of securities,
to facilitate the
trading of securities,
to protect investors,
and to promote development
in the nation's economy.
The Act is primarily
dedicated to the following
areas: investor protection,
timely disclosure,
issuer registration,
public offering, secondary
market distributions,
tender offers, insider
trading and the regulation
of securities businesses
and investment advisors.
Commercial
Code
The
Commercial Code, enacted
January 1962, is the
basic law providing
regulations for all
commercial and corporate
activities. For example,
a company drafting
its articles of incorporation
must refer to the
Code for details,
such as the total
shares authorized
for issuing and the
par value of each
share. The Code, since
its genesis, has undergone
several yet major
revisions in 1984,
1995, 1998 and 1999
to better reflect
developments in the
Korean economy.
Foreign
Exchange Transaction Act
To
attract foreign capital
and to liberalize
transactions for foreign
investors, the Foreign
Exchange Control Act
was replaced in 1998
by the Foreign Exchange
Transaction Act. The
first stage introduced
a negative-list system
over that positive
for capital account
transactions; liberalizing
the capital account
transactions related
to a firm's overseas
short-term borrowings;
and allowing all financial
institutions meeting
the requirements to
engage in foreign
exchange business.
In 2001, foreign exchange
transactions and capital
account transactions
by individuals were
liberalized, on top
of further streamlining
of the remaining restrictions
on foreign exchange
transactions by corporations
and financial institutions.
This stage of liberalization
includes: eliminating
the ceiling on external
payments by residents;
liberalizing OTC securities
transactions between
residents and non-residents;
raising the ceiling
on Korean won-denominated
loans up to 1 billion
won to non-residents;
abolishing the restrictions
on non-residents'
Korean-won denominated
deposits and trusts
with maturity less
than one year; and
liberalizing foreign
currency purchase
by non-residents from
foreign exchange banks.
Futures
Trading Act
The
Futures Trading Act
was enacted to regulate
derivatives transactions.
The main objectives
are to protect investors
and contractors, and
to foster the futures
industry and market.
The act affects transactions
of physical commodities
and financial products
including interest,
foreign exchange,
securities and their
indices. However,
the transaction of
stock index futures
and stock index options
also falls under the
act.
The act basically
stipulates the structure
and operations of
the futures market,
including overall
operation of the
futures exchange;
licensing and regulation
of futures companies;
establishment of
the futures association
as a self regulatory
organization, as
well as regulatory
functions; and the
establishment of
supervisory authorities
of the regulators
such as the FSC.
Foreign
Investment Promotion Act
The
Foreign Investment
Promotion Act, effective
November 1998, replaced
the Act on Foreign
Direct Investment
and Foreign Capital
Inducement. Under
the new act, administrative
procedures for foreign
direct investment
(FDI) were dramatically
simplified and made
more transparent.
This act includes
tax-related plans,
exempting or reducing
corporate and income
taxes for FDI in target
industries, like high-tech;
providing low cost
rental facilities,
where national and
public properties
can be rented to foreign-invested
firms for up to fifty
years; and a free
investment zone, which
will be developed
to accommodate large-scale
FDI.
The first foreign
investment-related
law, originally titled
Foreign Capital Inducement
Act, was introduced
in 1960 to encourage
and regulate the inflow
of foreign capital.
Restrictions on foreign
investment were also
defined (e.g., public
utilities). Under
this act, a foreign
securities company,
with MOFE approval,
may also invest in
a joint venture securities
company in Korea.
For certain conditions
of foreign investment,
corporate, income
and other taxes are
reduced and/or exempted,
noted in the amendment
passed February 1997
which sets detailed
criteria for rent
exemptions or reductions.
Securities
Investment Trust Business Act
The
Securities Investment
Trust Business Act
was enacted August
1969 to regulate the
securities investment
trust business. It
protected beneficiaries
of investment trusts
and facilitated securities
investment for the
public. The act regulates
the contractual types
of investment trust,
the licensing of management
companies, and the
activities of management
companies and trustees.
In the name of public
interest and of investor
protection, the act
imposes restrictions
on exchanging personnel
and information between
the management company
and the company conducting
sales of beneficiary
certificates.
Securities
Investment Company Act
The
Securities Investment
Company Act was enacted
September 1998 to
provide investors
with various investment
instruments and to
promote the development
of Korea's capital
markets. Under the
act, securities investment
companies must register
with the FSC to invest
in securities.
Since a securities
investment company
is only a paper company,
it must transfer its
investment activities
to the asset management
company. The asset
management company
must be a corporate-type
company established
under the Commercial
Code. The investors
become shareholders
of the company and
receive the proceeds
of the management.
Securities
and Exchange Act 
